November 20, 2023
The world suffered through the worst pandemic in 100 years in the last four years. In addition to the devastating toll COVID-19 took on lives and health, it was also a massive hit to the world economy. Countries experienced severe recessions in 2020 as large segments of the economy were shut down to limit the spread of the pandemic.
All the wealthy countries countered the impact of this shutdown with government relief programs to allow people to sustain themselves until the economy was back on track. The support programs, coupled with the supply disruptions created by the pandemic, led to a burst of inflation. This was worsened by the disruptions that followed Russia’s invasion of Ukraine.
With the pandemic largely behind us, economies have started to return to normal. However, the United States has done much better in its recovery than any other major country. Its GDP is not only well above its pre-pandemic level, but it’s also above the growth path that was projected in 2019 before the pandemic hit.
And, despite what many would think, our inflation rate is lower than in any other major country, except Japan.
Wages Have Outpaced Inflation
Higher prices were a big hit to families, but wages actually rose more rapidly. This means that most people actually have more income today, even adjusting for inflation, than they did before the pandemic.
Also, as a result of the tight labor market of the last couple of years, workers at the bottom end of the wage distribution saw the biggest wage gains. Much of the increase in inequality between higher paid and lower paid workers has been reversed in just four years. Roughly 80 percent of workers fall into the production and non-supervisory category.
Unemployment Has Been Below 4.0 Percent for Nearly Two Years
Unemployment was low before the pandemic, as it had gradually declined since the end of the Great Recession. It spiked in April of 2020 as the pandemic led to mass layoffs in sectors like hotels and restaurants. It then came down quickly, driven partly by the end of pandemic restrictions and partly by the recovery package passed in February of 2021.
The unemployment rate first fell below 4.0 percent in February of 2022. It has remained below 4.0 percent ever since — for 21 consecutive months. This is the longest period of below 4.0 percent unemployment in more than half a century.
Black Unemployment Has Hit Historic Lows
The Black unemployment rate has historically been close to twice the unemployment rate for whites due to discrimination in the labor market. This means that Blacks disproportionately benefit from low unemployment and tight labor markets. This ratio has even been reduced somewhat.
The unemployment rate for Blacks fell sharply as the economy recovered. In April of this year, it fell to 4.7 percent, the lowest Black unemployment rate on record. It has since edged up some, but it remains at historically low levels. While the racial disparity in unemployment rates has not been eliminated, a lower Black unemployment rate means that a larger share of the Black labor force is working than is typically the case in the U.S. economy.
Record Employment Rates for People with Disabilities
The tight labor market, coupled with increased opportunities for working from home, has led to a surge in employment of people with disabilities. Employment rates for people with disabilities had exceeded their pre-recession level by September of 2021. They have continued to rise, peaking in August. (This series is erratic in part because it is not seasonally adjusted.)
Record Levels of Workplace Satisfaction
The tight labor market we have seen in the last two years has given workers the ability to leave jobs they don’t like and find better ones. As a result, millions of workers left jobs where they felt there was little opportunity for advancement, that the work was stressful or boring, or they had an abusive boss. As a result, the Conference Board’s survey shows that workers now report having the greatest level of workplace satisfaction in the nearly forty years they have conducted the survey.
Homeownership Rises Overall and Rises for Young People, Blacks, Hispanics, and Moderate-Income Households
The low interest rates earlier in the recovery, coupled with the pandemic payments and a strong labor market, allowed for an increase in homeownership for most segments of the population. The jump in mortgage interest rates, following the Fed’s interest rate hikes, has led to some reversal in the last few quarters, but homeownership rates are still higher than before the pandemic.
Student Loans Are More Affordable
The Biden Administration tried to implement a loan forgiveness plan, but was blocked by the Supreme Court. Nonetheless, the administration has still been able to forgive over $120 billion in debt, largely in cases where colleges were determined to have engaged in fraud or where servicers had wrongly thrown borrowers out of forgiveness programs, such as the one for people who work in public service jobs for ten years.
More importantly, the Biden administration has put in place a far more generous income-driven repayment system which should limit the extent to which borrowers are burdened by their debt.
Under this plan, borrowers will pay nothing if their income is less than 225 percent of the poverty level for their family size. This means that a single person would pay zero if their income is less than $32,800. A person with one kid would pay zero if their income was less than $44,370. Furthermore, they would only pay 5 percent of their income on amounts above these cutoffs. Also, the outstanding loan balance will never rise, even if the payment does not cover the interest due.
Healthcare Insurance Is More Affordable
The Biden administration has substantially increased the subsidies for people who get healthcare insurance through the exchanges established under President Obama. As a result, getting healthcare through the exchanges is much more affordable for moderate and middle-income households. The chart below shows payments that a person would be expected to pay for a standard silver plan, which is supposed to be a middle quality insurance plan. If they chose to get a higher quality plan, with more coverage and fewer deductibles, they would pay somewhat higher rates.
Other Good Economy Stories
There are several other ways in which the economy looks better today than before the pandemic. More than 14 million households refinanced their mortgages before rates rose last year, saving themselves an average of more than $2,500 a year in interest payments. The number of people working from home has increased by more than 11 million since the pandemic, saving those workers thousands of dollars a year in commuting costs and hundreds of hours in commuting time. There has been a large rise in self-employment, primarily among Black and Hispanic women.
The CHIPS Act, which was intended to promote domestic production of cutting-edge semiconductors, and the Inflation Reduction Act, which was intended to jump-start the transition to a green economy, both led to an unprecedented boom in factory construction. It is now up by more than 170 percent from its pre-pandemic level. And, Biden started the American Climate Corps which will employ 20,000 young people on projects reducing greenhouse gas emissions. While we still have to do a huge amount more, the country has taken crucial first steps in transitioning to a green economy.
There is no shortage of economic problems — that should be familiar to CEPR followers. The ending of the expanded child tax credit led to a big jump in child poverty last year. We are desperately short of affordable child care options. Health care is still far too expensive for tens of millions of people, and the private equity gang is always looking for ways to make it still more expensive. And inequality is still ridiculously high, even if we have turned the corner by some measures.
Nonetheless, we have made more progress in the last three years than almost anyone would have anticipated. And, for that, we should be thankful.