Analysis reveals low wage jobs remain in short supply

John Friedman, Brown University Economics Professor and Opportunity Insights Co-Director, joins Yahoo Finance’s Akiko Fujita to break down his new analysis of the labor market which shows that low wage jobs remain in short supply amid COVID-19.

Video Transcript

AKIKO FUJITA: The latest jobs data points to slow but improving recovery picture in the labor market. Initial jobless claims last week fell below 1 million for the first time since the start of the pandemic. Having said that, the recovery has been slow going for those on the lower end of the wage scale. Less than half the jobs that have been lost have returned for those earning less than $20 an hour.

Let's bring in John Friedman. He is a Brown University economics professor and Opportunity Insights co-director as well. And John, it seems fitting that we're talking about this on a day where we've seen more records in the markets today, because we have seen this huge divide that's been exposed during the pandemic.

You've been looking at the data in the labor market. What have you found in terms of that divide?

JOHN FRIEDMAN: Well, thanks, Akiko. There's an unbelievably stark divide, not only between the stock market and employees, but even among workers between highly-paid workers and lower-paid workers. High-paid workers, they weren't affected as much initially, and then they've really snapped back. So for them, the recession is essentially over.

But low-wage workers suffered extreme job loss in April and May. And even though we have seen a strong recovery, as you said, we're only about halfway back. And what's worrying is that the speed of the recovery for those low-income workers seems to really be slowing.

AKIKO FUJITA: And how much of that slowing pace has to do with the stimulus as well? If you're a small business, you got initial loans through the Paycheck Protection Program that have yet to be renewed. And then if you are a worker who is looking to find a job right now, you've essentially been hit on both ends. There's no job, but also no enhanced unemployment benefit.

JOHN FRIEDMAN: Well, I think that's exactly right. I think that the slowing of the recovery is mostly due to the fact that many low-wage jobs simply cannot be performed or there's just not as much demand for them when we still have such serious public health concerns, right? So if everyone is working from home, if you're a cafeteria worker at those large offices, right, there's really just nothing for you to do. Those jobs aren't coming back for a while.

But then, as you mentioned, the fact that the recovery is slowing is just terrible timing for the fact that the federal government has been unable to put in place a renewed stimulus package, whether we're talking about extending unemployment benefits, putting out another set of stimulus payments, re-upping the PPP. The fact that all of that support is withdrawing from the economy is coming at exactly the wrong time for all of these households.

AKIKO FUJITA: How many of those jobs that were lost-- when you talk about the lower-wage scale, how many of those jobs do you anticipate will actually come back?

JOHN FRIEDMAN: So my sense is that once we actually get the public health crisis under control-- and as an economist, I think we have to go back to the doctor you just had on a while ago to get a better answer for that. But once the public health crisis gets back under control, I suspect many of those low-wage jobs will come back. They may come back in different places or in different industries than they were before.

But I don't think this is going to lead to a long-term kind of crisis of unemployment once we get the public health situation fixed. But until we do, I think we may really be hitting a new normal. And I think that just underscores the importance of really focusing on public health. I think public health really is good economic policy at this point.

AKIKO FUJITA: Of the things that we've seen since the financial crisis is that there is a generation that can get hit. And it takes not just five years, in some cases 10 years to recover. I mean, how permanent is this divide that we're seeing right now? Can we draw parallels from what happened in 2008? Or are we looking at a situation that is much worse?

JOHN FRIEDMAN: I think we may be looking at a situation that's much worse. You're right that we are still seeing today in the labor market the scars of people who had the misfortune of graduating into the recession in 2000 and 2001. So these scars last for a really long time.

But I think what's different in this recession that's going to make it even worse is, as you were discussing before, education is being disrupted as well. Colleges are being disrupted. And also, elementary and high school are being disrupted.

We have data from the spring where we were able to measure learning in different schools. And it's very sad but unsurprising that schools that serve higher-income students or white students were much better able to continue learning after schools shut down and went remote in March, whereas those schools serving poor students or minority students were much less likely to see steep fall offs in learning. And so I think for those reasons, for the labor market reasons that we've talked about, there's every reason to worry that this recession is going to exacerbate what are already very wide inequalities that we see in the American economy today.