The Great Divider – COVID-19’s Poverty Penalty
June 24, 2020 by Ezra Tanen
by Alexander Afnan
As we near the end of June, there have been almost 10 million confirmed global cases of COVID-19. Unlike other epidemics of recent years, the repercussions of COVID-19 touch every nation in the world; both rich and poor have been affected by the virus, directly and indirectly. However, rather than being “the great equalizer,” as described by New York Governor Andrew Cuomo towards the beginning of the outbreak, COVID-19 has exacerbated existing economic inequalities, punishing minorities and the poor the most. Yet, there is still time to decelerate the growth of this divide if the government implements policies that are targeted towards those most affected. For example, the government can take critical steps towards ensuring short-term support and long-term stability for jobs and businesses most at risk by strengthening wage protection and expanding access to short-term capital.
Globally, and nationally, COVID-19 has exacted a penalty on those already experiencing differing degrees of poverty. In April 2020, the IMF released an update to its “World Economic Outlook” from October 2019, breaking down GDP projections by country over 2020 and 2021. The difference between the October and April projections demonstrates “the COVID effect,” and even conservative estimates signal a worrying 40-60 million person increase among those living in “extreme poverty” (earning less than $1.90 per day) between 2020 and 2021. Far from “equalizing” the disparities between wealth and poverty, the effects of COVID-19 ensure that 2020 will be the first year in the 21st century that the number of people living in extreme poverty will rise.
There are numerous factors driving the pandemic’s disproportionate economic impact. While some nations and multilateral institutions have introduced multi-million-dollar economic stimulus packages to support businesses and workers, most economically developing nations lack the institutional infrastructure and financial capacity to follow suit. The United Nations International Labor Organization warns that nearly half of the global work force—up to 1.6. billion people—could see their livelihoods destroyed following the sharp decline of the “informal economy,” which accounts for economic activity operating outside state controlled or money-based transactions. These represent the most vulnerable workers in the labor market, many of whom have no access to savings. For the vast majority of employees in these sectors, working from home is simply not an option; business closures and stay-in-place orders mean no source of income.
In the United States, COVID-19 has similarly impacted the poorest in society more than the wealthy and middle class. Figures from early June show that almost 43 million people have filed unemployment claims in the United States, with the U.S. Federal Reserve projecting up to 47 million jobs lost throughout the summer. However, the unemployment distribution is far from even. 39% of employees living in households that earn $40k or less were furloughed or terminated as a result of COVID-19, compared with only 13% in households earning more than $100k. Additionally, low-earning workers are disproportionally at risk from contracting COVID-19 as they are more likely to work in high-exposure jobs, live in crowded housing, and reside in neighborhoods with limited access to healthcare.
Another demonstration of the disproportionate toll can be seen through the staggering racial disparity of COVID-19. Differing mortality rates provide one obvious indication. Although Black Americans represent 13% of the population in the United States, they account for 25% of COVID-19 deaths. The racial disparity in mortality rates is especially startling in urban cities. For example, Black Americans account for approximately 31.5% of positive COVID-19 cases in Chicago yet make up 46.3% of Chicago’s COVID-19 deaths, and, in Washington, DC, the mortality rate of Black Americans is six times higher than for white Americans.
The racial disparity of the pandemic is similarly evidenced by the higher economic loss suffered by Black Americans. 16% of Black Americans report being furloughed or terminated as a result of COVID-19, in comparison with 11% of white workers. Unfortunately, many of these employees simply do not have the financial safety net necessary to withstand temporary unemployment; 58% of Black households nationwide lack the savings to cover three months of expenses. Businesses with majority Black ownership are also suffering. Almost 50% of Black-owned businesses are in industries that have suffered particularly heavy losses—healthcare, administrative support services, social assistance, and retail. Furthermore, over 90% of majority-Black businesses hold cash reserves of fewer than 14 buffer days. Partly owing to this lack of resources, more than 40% of Black-owned businesses have closed between February and April, almost doubling the rate for businesses nationwide. As the successes of minority-owned companies often radiate out to their wider community, the closures and terminations that Black Americans disproportionately face will have lasting ripple effects.
At this critical juncture, it is imperative that we re-evaluate the health, housing, and social support systems in the United States and abandon the “trickle down” economics adopted by Congress through its COVID response. While the President has repeatedly issued statements emphasizing that “restoring the economy” is the main priority, the reality is that mainstream measures of economic health, such as GDP, do little to account for the average American worker’s financial stability and wellbeing. Despite its unprecedented size, Congress’s $2 trillion stabilization package (the CARES Act) has not been directed at those most affected, offering, at best, a miserly contribution towards cost-effective forms of government assistance for indigent communities. For example, of the $2.2 trillion appropriated, HUD received just $12.4 billion total for housing assistance programs. Worse, less than 10% of those funds will go toward funding the housing voucher program, which assists over 5.3 million people in 2.2 million low-income households, and only $2.5 million will be directed towards the Fair Housing Program. Further, a mere $4 billion will fund homeless assistance grants to provide emergency shelters and care. While this grant is a useful starting point, it is unfortunately less than 40% of what experts estimated it would realistically cost to manage the epidemic for the 575,000 homeless people in the United states. By contrast, the stimulus package allocated $500 billion for big corporations, $58 billion to airlines in grants and loan guarantees, and $150 billion for states and local governments running into debt. As in 2008, lawmakers are trying to save the cathedral by fixing its steeple, even as the foundations crumble. Until Congress focuses on the implications of economic policy on poverty, the building will continue to collapse.
In order to protect and ensure economic stability for those most affected by COVID-19, the United States must provide direct, deliberate and lasting support, rather than waiting for economic relief to indirectly trickle down. One form of direct support comes through wage protection. Currently, the CARES Act offers a 50% tax credit of up to $10,000 on wages until the end of December 2020. This subsidy is simply too small to grant employers the incentive needed to retain many employees at risk of losing their jobs. Additionally, this tax credit can only be obtained if employers can show that they had a decrease in gross receipts of up to 50% or more from the previous quarter. By comparison, many other nations have taken great strides to protect their labor force. Germany’s employment laws, for example, ensure that employees receive complete remuneration if they are unable to work from home, and state-paid compensation for reduced hours resulting from COVID-19. Denmark’s government has committed to covering 75% of all employees’ salaries who risk being terminated, with their employers covering the remaining 25%. The United States needs to follow suit if it is to bring an end to the widening economic divide brought about by COVID-19. As the magnitude of the CARES Act demonstrates, the United States undoubtedly has the capacity and the resources. By allocating more of the $2.2 trillion stimulus package towards wage protection, the United States could expand the range of businesses and employees that could be eligible for wage credits and eliminate the $10,000 cap on protected wages. Otherwise, without direct assurances and concrete safety-nets, policymakers simply cannot offer long-term stability for those most at risk of losing their jobs.
Another effective form of direct support is to institute policies that will support minority-owned small businesses and increase access to short-term capital. As it stands, Black-owned businesses are denied loans at twice the rate of white owners and are more likely to have trouble finding capital to withstand the pandemic. Yet, Congress’s response has been anything but adequate. The CARES Act’s multi-billion-dollar Payment Protection Program (PPP) loan program formed unnecessary barriers that seem to favor bigger companies with pre-existing banking relationships. For example, the program’s first round of funding required that borrowers work with banks already participating in the Small Business Administration’s primary loan program, thereby excluding businesses using smaller community banks. Researchers estimate that these requirements would likely prevent 95% of Black-owned businesses and 91% of Latino-owned businesses from receiving a loan. During the coming rounds of small business funding, policymakers should make loans more flexible and easier to access for all businesses, particularly small businesses. It is also imperative that support for businesses is not blind to the differing challenges brought about by race. The NAACP has called on Congress to allocate 50% of the proposed $250 billion PPP expansion to minority-owned businesses. By setting aside significant portions of the multi-billion-dollar loan program for minority-owned businesses, policymakers can provide minority-owned businesses and employees with the necessary resources to keep their operations and employees afloat, and decelerate the widening racial and economic wealth gaps in the United States. Until concrete steps are taken, any assurances of supporting minority-owned businesses are but hollow promises.
COVID-19 has left a permanent mark on the world, having now claimed the lives of nearly 500,000 people globally. But the accumulating hardships borne by indigent and minority communities need not be inevitable. If we have learned anything from our social distancing ordinances, it is of our fundamental human interdependence. It is time that our employment laws and economic policies reflect that same truth.
 Andrew Cuomo (@NYGovCuomo), Twitter, (Mar. 21, 2020, 12:13 PM), https://twitter.com/NYGovCuomo/status/1245021319646904320.
 IMF, World Economic Outlook: The Great Lockdown 7 (2020), https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020.
 Principles and Practice in Measuring Global Poverty, World Bank (Jan. 13, 2016), https://www.worldbank.org/en/news/feature/2016/01/13/principles-and-practice-in-measuring-global-poverty; see also Understanding Poverty – Overview, World Bank (Apr. 16, 2020), https://www.worldbank.org/en/topic/poverty/overview.
 While experts differ in the severity of the COVID effect on the poor, there is a general consensus that the numbers of people living in extreme poverty will increase significantly by 2021. See e.g., The Brookings Institution (50 million people), Homi Karas & Kristofer Hamel, Turning back the Poverty Clock: How will COVID-19 impact the world’s poorest people? The Brookings Inst. (May 9, 2020), https://www.brookings.edu/blog/future-development/2020/05/06/turning-back-the-poverty-clock-how-will-covid-19-impact-the-worlds-poorest-people/; the World Bank (40-60 million people), Daniel Gerszon Mahler, et al., The Impact Of COVID-19 (Coronavirus) on Global Poverty: Why Sub-Saharan Africa Might be the Region Hardest Hit, World Bank Blogs (Apr. 20, 2020), https://blogs.worldbank.org/opendata/impact-covid-19-coronavirus-global-poverty-why-sub-saharan-africa-might-be-region-hardest; The United Nations University World Institute for Development Economics Research (420-580 million people), Andy Sumner, et al., Estimates of the impact of COVID-19 on global poverty6 (2020), https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/wp2020-43.pdf.
Karas & Hamel, supra note 4.
 See e.g., Jonathan Masters, Coronavirus: How Are Countries Responding to the Economic Crisis?, Council on Foreign Relations (May 4, 2020) https://www.cfr.org/backgrounder/coronavirus-how-are-countries-responding-economic-crisis; How the US coronavirus stimulus package compares to those of Europe, The World (Apr. 3, 2020), https://www.pri.org/stories/2020-04-03/how-us-coronavirus-stimulus-package-compares-those-europe.
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 Nearly half of global workforce at risk as job losses increase due to COVID-19: UN labour agency, supra note 7.
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 See US Must Improve COVID-19 Strategy to Keep Tens of Millions from Falling into Poverty, Urges Rights Expert, supra note 12.
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 Eugene Cornelius Jr., Without More Help, Black-Owned Businesses Might Not Survive the Pandemic, CNN Perspectives (Apr. 30, 2020), https://www.cnn.com/2020/04/30/perspectives/black-businesses-coronavirus/index.html.
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 Hannah Knowles, Number of Working Black Business Owners falls 40 Percent, Far More Than Other Groups Amid Coronavirus, Was. Post (May 25, 2020), https://www.washingtonpost.com/business/2020/05/25/black-minority-business-owners-coronavirus/.
 See Peter Baker, Trump’s New Coronavirus Message: Time to Move on to the Economic Recovery, N.Y. Times (May 6, 2020), https://www.nytimes.com/2020/05/06/us/politics/trump-coronavirus-recovery.html.
 GDP merely measures the size of a nation’s economy but does not take into account the distribution of income or qualitative measures of wellbeing and financial stability. This means that national GDP growth could see the wellbeing, wealth and purchasing power of the majority of citizens decline, so long as the highest earners increased their net wealth sufficiently. See e.g., Amit Kapoor & Bibek Debroy, GDP Is Not a Measure of Human Well-Being, Harv. Bus. Rev. (Oct. 4, 2019), https://hbr.org/2019/10/gdp-is-not-a-measure-of-human-well-being.
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