MNI POLICY: Low-Wage Workers Hardest Hit in Slump: Fed Paper

By Pedro Nicolaci da Costa

     WASHINGTON (MNI) - The lowest paid workers have been hit hardest by the

pandemic-led recession that rapidly pushed the U.S. unemployment rate into the

double-digits, according to a new paper co-authored by Federal Reserve

economists.

     That could mean the Fed will keep interest rates near zero for even longer

than markets now expect as policymakers seek to ensure an eventual recovery

reaches the most vulnerable corners of society, a concern Fed Chairman Jerome

Powell has repeatedly emphasized.

     As of late May, employment for workers in the lowest 20% of the income

distribution was still 30% lower relative to mid-February, said the paper,

co-authored by four Fed staffers and presented at a Brookings Institution

conference Thursday. 

     While the research, based on ADP payroll data, found some instances of

workers being able to return to their jobs as parts of the economy gradually

reopened, it also suggested long-term damage to the labor market may be in

progress.

     "After aggregate employment fell by 21% through late-April, we highlight a

modest employment rebound through late-May," the paper said. "The re-opening of

temporarily shuttered businesses contributed significantly to the employment

rebound, particularly for smaller businesses."

     --SECOND WAVE 

     Spikes in new cases throughout the United States over the last two weeks

have raised fears of a "second wave" of the coronavirus pandemic that could

deliver yet another blow to an already battered economy.

     That could throw a wrench in the process described in the paper, which

shows "worker recall has been an important component of recent employment gains

for both re-opening and continuing businesses."

     The paper also found that, for the workers that were not let go, businesses

reacted to shutdowns through a combination of wage cuts and reductions in hours.

     "Businesses have cut nominal wages for about 10% of continuing employees

while forgoing regularly scheduled wage increases for others," the research

found.

     The Fed responded aggressively to pandemic-led shutdowns once their scope

and likely length became clearer, cutting rates to zero and launching a range of

emergency credit facilities aimed at preventing another 2008-like credit crunch.

     The central bank has yet to offer clear forward guidance on how long it

expects rates to remain at zero, but top officials have indicated it will take

at least a couple of years before the Fed is even close to considering

tightening policy.

     Nearly 47 million Americans have filed for unemployment since the start of

the pandemic, Labor Department data show.

--MNI Washington Bureau; +1 202 371 2121; email: pedro.dacosta@marketnews.com

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