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May 2020, Volume 26, Number 2
Labor, Virus, H-1B
After adding jobs for 113 consecutive months, employment fell by 701,000 in March 2020 and the unemployment rate rose from a 50-year low of 3.5 percent in February 2020 to 4.4 percent in March 2020. Between 2010 and 2020, the US added 22 million jobs, recouping the almost nine million lost during the 2008-09 recession and more.
The coronavirus quickly reversed economic and job growth. Consumer spending accounts for 70 percent of US economic activity, and as consumers stayed home, spending declined and workers were laid off. Almost 17 million people applied for unemployment insurance (UI) benefits during the first three weeks after stay-at-home orders were issued in mid-March 2020, and the unemployment rate for April 2020 is expected to top 10 percent.
Employers pay a tax of up to five percent on the first $7,000 of their employees’ earnings to fund UI benefits. Since most workers earn far more than $7,000 a year, over half of UI taxes are paid in the first quarter of the year. In 2019, California employers paid $5.9 billion in UI taxes and laid off workers collected $5.5 billion in UI benefits; jobless workers received an average $330 a week for 17 weeks in 2019.
As Americans stayed home, five sectors that employed almost 14 million full-time equivalent workers in 2018 were especially affected: air transportation; performing arts and sports; gambling and recreation; hotels and other lodging; and restaurants and bars. Wages to workers in these five sectors were almost $600 billion or 10 percent of total employee compensation.
The $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES), the largest-ever US economic stimulus package, was approved in March 2020 to cushion the effects of the economic shutdown by sending $1,200 checks to Americans with adjusted gross incomes of less than $75,000 and supporting impacted industries such as airlines. Grants to hospitals and forgivable loans to small businesses that keep their employees on the payroll aim to increase the capacity to care for the sick and to reduce unemployment.
The CARES $1,200 per adult and $500 per child payments are limited to those with valid Social Security Numbers. The 4.4 million people with Individual Tax Identifying Numbers in 2015 are not eligible for the payments, nor are US citizen children with unauthorized parents.
CARES also changes UI benefits through July 31, 2020, adding $600 a week to weekly benefits that vary by state. Most states offer benefits of $200 to $500 a week for up to 26 weeks, so that many low-wage jobless workers may receive higher UI benefits than they were earning in weekly wages. CARES extends state UI benefits that normally last up to 26 weeks for an additional 13 weeks.
President Trump expressed hope that stay-at-home orders could be lifted relatively soon, asserting that the government “cannot let the cure be worse than the problem itself.” Public health experts believe that people should stay at home longer, while some economists argue that returning to normal could prevent a wave of bankruptcies and layoffs.
As the number of coronavirus cases began to level off in April 2020, there was speculation about the shape of the economic recovery and how fast the travel industry, sports, and entertainment would bounce back, that is, how fast would Americans return to mass gatherings with strangers? Economists distinguished between V, U, and L-shaped recoveries, meaning a quick bounce back, a longer spell of high unemployment before recovery, and a long recession.
The V-recession and recovery is based on the notion that the coronavirus is akin to the seasonal flu, and that people will return to work and live as they did before the lockdown. The U-shape anticipates a longer period of high unemployment, years rather than months, but similarly ends with a recovery to a pre-crisis economy. The L-shape imagines a recession that persists, as with Japan’s inability to restart its economy after the bubble burst in 1990.
The cruise industry, which had several well-publicized cases of the virus spreading on ships, is considered a canary in the coal mine for judging a return to normalcy. Carnival is the largest operator, with over 100 ships and nine brands carrying over 12 million passengers a year. A third of cruise passengers are 60 and older, putting them in the highest risk category for infectious diseases. Carnival and other cruise companies that primarily cater to Americans do not qualify for CARES assistance because they are incorporated outside the US and largely exempt from federal taxes. Carnival paid $71 million in US income taxes on revenue of $21 billion in 2019, Royal Caribbean paid $36 million on $11 billion of revenue, and NCL claimed a $19 million refund on $6.5 billion of revenue.
Gig. California’s AB 5 requires firms such as Uber that treated drivers as independent contractors to hire them as employees and pay taxes on their wages. In February 2020, a federal judge refused to enjoin enforcement of AB 5 while a suit alleging that AB 5 was unconstitutional because it singled out app-based technologies worked its way through the courts. Uber and other app-based firms are supporting a November 2020 ballot measure to overturn AB 5.
Some gig workers staged walkouts in March 2020 to protest what they considered low pay for risky work at a time of coronavirus. Instacart, which has 200,000 shoppers who select and deliver groceries, experienced a walk out of some of its gig workers who wanted extra pay; Instacart reported that the walk out had little impact on its ability to deliver groceries. Some workers at grocery stores demanded hazard pay for working when stay-at-home orders are in effect.
Immigration. Immigration is falling: net immigration was less than 600,000 in 2019. Wages for workers with less than a high school diploma are rising, up 10 percent in 2019.
Reduced immigration is a major reason for the rising wages for low-skilled workers; other reasons include higher minimum wages in many states. The occupations that are canaries in the coal mine for the effects of reduced immigration on wages include building-and-grounds maintenance workers, drywall installers, farm workers and housekeepers, all dominated by low-skilled immigrants.
About 7.6 million of the 11 million unauthorized foreigners in the US are in the labor force. Most are employed in services, where most US workers are also employed. The share of unauthorized workers is highest in agriculture and construction.
H-1B. Employers requested 275,000 H-1B visas for FY21, far more than the 85,000 available. Employers registered their requests on a USCIS web site in March 2020, and USCIS will hold a lottery to determine who receives H-1B visas.
Accounting firm Deloitte was the top applicant for H-1B visas in FY19, winning DOL approval to fill 57,000 jobs with workers than Deloitte hired directly and via contractors providing H-1B workers to Deloitte clients. Qualcomm was second with over 29,000 DOL-approved H-1B jobs. DOL certifies almost all employer requests for H-1B visas, but the USCIS lottery determines exactly who gets H-1B visas, so it is unlikely that Deloitte hired 57,000 H-1B workers.
In March 2020, ATT reportedly outsourced much of its IT work to Accenture, which plans to replace the US workers who were transferred from ATT to Accenture with H-1B visa holders. Some of the transferred US workers, who expect to be pushed out of Accenture over time, complained that ATT did not provide severance pay because they became Accenture employees.
Census. The census in spring 2020 collected data on 330 million US residents. The US added 19 million people since the 2010 census, and the country has become more diverse and older. Texas gained the most residents between 2010 and 2018, adding almost four million, followed by Florida, which added almost three million.
The share of foreign-born residents is expected to top 14 percent in 2020, similar to the immigrant share in 1914. Over half of foreign-born residents are naturalized US citizens.
Americans are becoming more urban: 31 percent live in the 55 metropolitan areas that each have over a million residents, compared with 14 percent who live in smaller cities of 20,000 to 50,000. The median age of US residents is 38, and the share of US residents 65 and older is expected to exceed the share 18 and younger in 2034.
Married couples are half of US households. A quarter of American households have one person, while 20 percent are married couples with children at home.
Budget. President Trump proposed a $4.8 trillion federal budget for FY21 that would increase defense spending and reduce spending on safety net programs and foreign aid. US public debt was 80 percent of GDP before the March 2020 stimulus package aimed at combatting the economic effects of the coronavirus.
Trump’s budget projections foresee public debt as a share of GDP falling due to faster economic growth, while the CBO projects public debt rising toward 100 percent of GDP.
The federal government approved an emergency stimulus package in March 2020 that included direct payments to US residents and bailouts for particular industries. One consequence of the virus and stimulus was record federal debt, as the federal budget deficit soared past the previous record $1.5 trillion in 2009. US federal debt, including government debt and debt held by government agencies such as Social Security trust funds, topped $24 trillion in 2020, or more than 100 percent of GDP.
French-born UCB economists Gabriel Zucman and Emmanuel Saez documented rising inequality and recommended a wealth tax on the richest Americans. Zucman and Saez estimate that the top one percent of Americans, fewer than 250,000 people, each have an average $70 million in wealth for a total of 20 percent of all US wealth. Bernie Sanders and Elizabeth Warren proposed wealth taxes to raise $400 billion a year.
Public pension systems, which make payments to 11 million people a month, lost assets as stock prices dropped in March 2020. Most public pension systems do not have enough assets to pay promised benefits, and many embraced risky investment strategies to raise returns. These strategies backfired when the coronavirus fueled a flight to safer investments.
The California Public Employees' Retirement System (Calpers), the largest US public pension system, had over $400 billion in assets when stock markets peaked in February 2020, but lost almost $100 billion in assets as stock markets fell as the virus spread. Many reformers want to reduce pension promises, a move strongly resisted by unions that represent public employees.