CARES Act funds quickly put cash in the hands of Americans affected by shutdown, but in many cases, relief didn’t reach minority and low-income workers who needed it most. Damon Jones discusses the inequalities in relief efforts and how the country can build a stronger social safety net going forward.

Watch Damon Jones’ Full Congressional Testimony

Unedited Transcript

TESS VIGELAND: The federal government’s quick response to the coronavirus crisis put cash in the hands of millions of Americans affected by the economic shutdown. It even kept the nation’s poverty rate from increasing, but it was far from perfect.

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EDUARDO PORTER: The money didn’t reach some of those hard-hit workers who needed it the most, especially minority and low-income families.

TESS VIGELAND: This is Pandemic Economics, a podcast about the global impact of COVID-19 from Stitcher and the Becker Friedman Institute for Economics. I’m Tess Vigeland.

EDUARDO PORTER: And I’m Eduardo Porter. We’ve been invited to have conversations with University of Chicago economists.

TESS VIGELAND: In this episode, I talk with Damon Jones of the Harris School of Public Policy about the inequalities of coronavirus relief efforts and how the country can build a stronger social safety net going forward.

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You testified recently before the House Budget Committee and said that this crisis has been framed as requiring sacrifices from everyone– and it has– but also that, in fact, not all households have had to tighten their belts equally. Where in the economy have those sacrifices been most severe?

DAMON JONES: I don’t know if I could say that there’s one place where it’s been most severe, but I will say that everyone has had to make adjustments. And there are people who have, maybe, less leverage or agency to make as much of an adjustment. So one group would be people who work in the industries that we referred to as “essential jobs” or “frontline jobs” and “frontline workers”.

On the one hand, they are able to continue to go to work, which some people are not. They have just become unemployed. But those who are able to continue to go to work, they tend to be in lower-wage jobs. And those are jobs where workers have lost a lot of traction and leverage over the last couple of decades.

And so, for example, Black workers are overrepresented in these industries. Latinx workers are overrepresented in some of these key, frontline industries. And that might feed into what we see, in terms of higher rates of infection.

TESS VIGELAND: You’ve studied how household spending changes in the wake of economic shock. And I suppose, unsurprisingly, households with more liquid savings don’t cut their spending as much as those without those savings. So they have a backup, and others don’t. How has that played out in the current crisis?

DAMON JONES: Unfortunately, the study that I did was not using data during the current crisis. But what I can tell you is that we document a really tight relationship between how much you have in liquid assets and how much of your necessary spending you’re able to continue carrying out. And we think that it’s likely that those same patterns are still at play during the pandemic.

We found two main findings. One was that– as you might expect and as you mentioned– when you lose a job or when you have a significant pay cut, the households with more liquid assets are able to continue meeting their needs and doing their necessary spending. And households with very low liquid assets are much more sensitive to this and have to reduce their necessary spending.

One thing to point out is, I’m using this phrase necessary spending intentionally. Because the thing that we looked at was non-durable spending. So this is spending on items that you’re going to buy and use in a very short period of time, like food, groceries, and things like that. So we saw a drop in that kind of spending for those with the lowest amounts of liquid assets.

The second thing we found is that there are strong correlation between race and ethnicity and how much you have in assets. So for example, the typical white household has $171,000 in total wealth or net wealth. A typical Black household has about $17,000. And then for Latinx households, it’s a little over $20,000. So there’s a 9-10 fold wealth advantage for those white households.

So knowing that, when we look back at spending, when you lose a job, or when you get a pay cut, Black and Latinx households tend to cut their spending by more than their white counterparts when they have these unnecessary drops in their household income. And so we expect that those same patterns are taking place during this pandemic.

TESS VIGELAND: Yeah, you know, we’ve heard almost from the beginning of the health crisis that the disease itself was having a far greater impact on the Black and Hispanic populations– one of, of course, many inequities in how this crisis has played out. And so your research is really showing that it’s highly likely that it is the same for this financial crisis.

DAMON JONES: Yeah. Exactly. So sort of a double whammy.

TESS VIGELAND: What about the effects of the CARES Act passed at the end of March? They had the household payments and also extended unemployment benefits. Didn’t those act to stem economic insecurity or not?

DAMON JONES: They did provide a lot of relief to a lot of families. There were definitely hiccups in the beginning, which is understandable because no one had it on their calendar– a reminder that a pandemic was going to happen. And that type of cash relief is very important in these times when people are going to be drawing down their assets or they don’t have assets. They’re becoming unemployed.

However, there were subsets of people who were maybe not as well poised to benefit or receive these payments. So for one thing, there were some delays in determining unemployment insurance eligibility, some delay in processing these IRS payments. And so even though at the end of the month, you can see that a household has received this payment, even delaying by a couple of weeks can cause a lot of insecurity– food insecurity. And for that in-between time, people can struggle to make ends meet until they receive those payments.

And so those people with the least amount of assets are going to be most affected by those delays. There are other people who are going to have a more significant delay or who were never intended to receive this relief. So there are households with an undocumented person in the household who are not eligible to receive the economic impact payment from the CARES Act.

And so, for example, in those households, you could have children who are US citizens who are not eligible because one of their parents doesn’t have a social security number. They are still parts of the community. They work in these frontline jobs. They contribute as much as anyone else, and they are left out of these provisions.

TESS VIGELAND: So there really has been a multiplier effect based on what these households were already experiencing, in terms of inequality of income, of opportunity, prior to the pandemic.

DAMON JONES: There is inequality that existed at the onset of the pandemic, and these conditions are just going to widen some of those gaps. In normal times, wealth gaps between racial groups or just between different households lead to more vulnerability, and in these times that we’re living in right now, I think those are just going to be even more dramatic.

For example, a lot of people get their insurance through their employer. Many people have lost their jobs in a short period of time. And so there are a lot of people who will be left uninsured after losing an employment. And so a system where your healthcare is not tied to where you work would have created a lot more continuity in healthcare during this time.

TESS VIGELAND: Right. So perhaps this is finally an event that decouples healthcare from the workplace?

DAMON JONES: Well it has definitely decoupled people from the workplace, but hopefully it can muster up enough support for rethinking this.

TESS VIGELAND: So overall, has the social safety net worked in this crisis? Has it been sufficient?

DAMON JONES: I would say that it helped. Without the CARES Act, there would be even more pain that people were going through. And I think there’s a lot of room for improvement. What has already been done is not going to be sufficient to keep people whole during the next coming months. So new rounds of policies need to be passed in order to continue to give people support. I talked about some of the people who might have fallen through the cracks initially. So we definitely need to pay attention to them. Because of what we have already done, though, we’re in a better place to rapidly give money out. So the IRS tracked down a lot of people– as many as they could. And so they could turn around and make a quick payment again to many people.

And so moving forward, I think that there’s an argument to be made for additional payments from the IRS to these households and to extend the unemployment insurance provisions that were added on. They’re going to expire at the end of July. That leaves a cliff where we’re now facing a lot of uncertainty. They probably should tie the extension to macroeconomic factors so that there’s not really another fight that we have to do six months later. Just tie it to some employment measures and it will continue to be renewed automatically, as long as we continue to have a deep recession.

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TESS VIGELAND: Coming up, we’ll hear about some longer-term strategies to help workers protect their finances.

EDUARDO PORTER: Stay with us for more Pandemic Economics in just a minute.

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TESS VIGELAND: I mentioned up top that you had testified in front of the House Budget Committee, and you also had some recommendations in terms of addressing some of these larger, more ongoing issues that we’ve talked about– wealth inequality, racial inequality, healthcare being tied to employment. Can you talk us through some of the recommendations that you made to them, and what do we learn from this moment?

DAMON JONES: Sure. Yeah. So if you look at survey evidence during the pandemic, and you just ask people if they’re covered by a union or not and then how things are going in the workplace among frontline workers, those who are covered by a union are more likely to say that they have protective equipment all the time, and sick paid leave, and access to COVID testing, and things like that. So we may be learning that these workers can negotiate better working conditions the more leverage they have. And so long term, protecting their right to collectively bargain, forcing our labor laws that are already on the books would be helpful.

And for wealth inequality, the main recommendation I made had to do with helping out people with low liquid assets. So the types of policies that provide them with cash relief on a regular basis would be helpful, both during a pandemic and then thinking big picture. We deliver a lot of cash relief to people through the tax system, and people usually receive those tax credits and payments once a year when they file their taxes. In the between time, there’s a lot of volatility that they experience. So coming up with a way to give them, maybe, a more continuous form of support throughout the year could steady some of that volatility.

TESS VIGELAND: What might that look like?

DAMON JONES: So there’s two things. One is that if you look at the way our welfare system used to be set up, traditional welfare in the ’90s gave you some support even if you didn’t work. And we shifted under the so-called welfare reform era to benefits that you get only if you work. So the earned income tax credit is a payment that you get conditional on working. And so there are a lot of reasons why that happened, but as a result, we don’t have a true safety net for the people who are not able to work. So I think one adjustment is re-introducing support even if you don’t work, as opposed to only tying it to work.

And then the other thing is, in terms of delivering something more frequently, I think that we should come up with a way to give earned income tax credit and payments more frequently, maybe at a quarterly basis. And that might require new administrative capacities, but I think it is worth looking into.

And then the final thing that I talked about in my testimony had to do with wealth inequality and general racial inequality. And so throughout the pandemic, we’ve seen– both on the health front and on the economic and financial front– disparate outcomes. So I don’t think that solving a pandemic-specific solution or policy is going to erase all of those differences. I think they draw on much longer-standing and historic forces and structural forces. And so it’s not clear to me that race-neutral policies are going to necessarily solve all of those things.

And so we also are seeing during a pandemic– for lack of a better term– an uprising against racist policies, including policies by the police and things like that– policing policies. And so this is not the first time we’ve seen that, and when it happens, there is a lot of rhetoric surrounding a search for solutions. But I think that we should think deeply about the history of this country with race and how fundamental racism has been at many different junctures throughout this country’s development. And so our approach has to address that head-on as opposed to only thinking about more proximate factors.

And so I brought up reparations as an example of a type of policy that tries to get at the root of these types of issues. The reason why I brought that up is not simply to think about it as an economic means of closing wealth gaps. It could, indeed, have that effect, but the other purpose of something like reparations– and this example applies to Black people, but there are similar types of approaches you can take for a number of different groups. But part of the goal is for there to be an acknowledgment of what has happened historically. So ignoring historic patterns, I think, has sort of limited the progress that we’re able to achieve.

So there are a number of harms– economic, physical, violent, and otherwise that have happened in the past that there hasn’t been any sort of redress given for. And as a country as a whole, if you’re trying to reach some sort of closure, this may be a step in that direction. The general idea is like as you saw in South Africa with Truth and Reconciliation, or reparations following internment of Japanese-Americans, that there is an intentional national reckoning with what has happened in the past. And so I think those will make all of the other things that we need to do to close these sort of racial gaps in a lot of different economic outcomes easier to do.

TESS VIGELAND: I hesitate to classify a global pandemic as having any sort of silver lining. Of course, it doesn’t. But I wonder if you feel at all that perhaps it has served a purpose to further highlight really deep inequities in this country? That maybe people might pay more attention?

DAMON JONES: I think it presents some opportunity. But, you know, I think it’s still too early to say. The reason why I say that is because the Great Recession was supposed to have delivered the same thing.

TESS VIGELAND: Right.

DAMON JONES: And we definitely have reached a different place, politically. If you look at something, say, for example– this is a very limited example, but if you look at presidential platforms during the Democratic primary, they’ve changed over time. And there are policies that were previously not given a lot of consideration, which have entered the discussion, at least. And that may have been an ultimate result of things that began during the Great Recession.

But, you know, the Great Recession wasn’t enough, I think, to get us completely over the hump. And so this current pandemic, again, presents some opportunities, but I don’t think it’s guaranteed to fully address some of these issues. I think that there has to be a lot of hard work done by people through various means, not just traditional means or traditional political means. And it is definitely possible.

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EDUARDO PORTER: The coronavirus outbreak has not just exposed the deep-set inequities that pervade American society. It has rattled the foundations of the global economy. In our next episode, we will explore how the pandemic might affect the conflict gathering steam between the United States and China.

SPEAKER: It’s clear that the US-China relationship is on the rocks. I really do think that we are in a death spiral. I don’t really think that COVID is really that important in terms of this bigger question of why we are at this death spiral. I think the issues are deeper, and they are harder to solve.

EDUARDO PORTER: Pandemic Economics is produced by the University of Chicago’s Becker Friedman Institute of Economics. Our producers are Devin Robins and Dana Bialek. Our executive producer is Ellen Horne. Production and original music by Story Mechanics. Pandemic Economics is part of the University of Chicago Podcast Network. I’m Eduardo Porter.

TESS VIGELAND: And I’m Tess Vigeland. Thanks for listening.