Impact of COVID-19 on Employment Income

The coronavirus pandemic (COVID-19) has disproportionately impacted the earnings of low-income Californians, widening the income gap between the 90th and 10th percentiles of income earners. This feedback loop of the poor getting poorer demands government action and reflects a failure to provide a universal, minimum standard of living in one of the richest states in the richest country in the world.

Quantifying Inequality

Income is a useful measure to evaluate the extent to which an individual, family, or household can support itself. However, there is significant income inequality across geographic scales, and the inequality has grown in recent decades. At the national level, the top 1% of income earners received less than 10% of national income in the late 1970s, rising to over 20% in 2012 (Saez and Zucman). The evolution of the 90/10 ratio—the ratio between the 90th and 10th percentile incomes—shows similar increasing (but less extreme) trends: in 1970, the 90/10 ratio was 6.9 nationally, while in 2016 it was 8.7 (Kochhar and Cilluffo). California’s income inequality is far worse, with a 90/10 ratio of a staggering 12.3 in 2018 (Bohn and Thorman).

The coronavirus pandemic has further exacerbated these inequalities. In three of the last four recessions (1980, 1989, and 2007, with 2001 being the exception), the 90/10 ratio has increased by approximately 20% in the years following the pre-recession peak (Bohn et al.). Furthermore, while the unemployment rate for families making over $150,000 annually (below the 90th percentile) increased from roughly 3% between January and March 2020 to approximately 9% between April and June 2020, the unemployment rate for families making under $30,000 annually (above the 10th percentile) skyrocketed from 12% to 30% over the same time (Bohn et al.). The greater increase in unemployment at lower incomes depresses the 10th percentile income; the smaller increase in unemployment at higher incomes raises the 90th percentile income.

Drivers

The suppressed incomes of low-wage workers have arisen from the devaluation of their labor and the ubiquity of their skills. Over the past several decades, corporations have transitioned away from significantly considering stakeholder interests to focusing on shareholder value (Gomory and Sylla). As every dollar spent on labor is a dollar less of profit, companies are therefore incentivized to slash wages as much as possible so long as there are enough workers to sustain operations. This has led to the depression of wages for low-income workers and an increase in income for shareholders, who tend to have higher incomes. 

The change in valuation of low-skill workers is readily apparent in a comparison of two janitors, one at Kodak in the early 1980s and the other at Apple in the mid-2010s. The former was an employee, with all the benefits that came therewith, while the latter was a contract employee who could not even afford to take vacations (Irwin). In chasing shareholder profit, companies have become increasingly specialized, outsourcing labor to contractors who bid at lower and lower rates with fewer and fewer benefits for their employees. This has fueled the growing income gap, with company employees often compensated with the very shares whose prices continue to rise even as contractor employees scrape by.

Homing in on the interchangeability of low-wage workers, Tim Bray notes one problem in his explanation of why he quit his job as VP and Distinguished Engineer at Amazon Web Services: “that Amazon treats the humans in the warehouses as fungible units of pick-and-pack potential. Only that’s not just Amazon, it’s how 21st-century capitalism is done” (Bray). With minimal requirements beyond an able body, employment at Amazon warehouses has commensurately low wages. Indeed, labor has become yet another interchangeable cog for the corporate machine.

The aggressive stance that many large companies—Amazon included—have taken against unions is another cause of declining wages. With nearly $340 million spend on busting unions annually, it comes as no surprise that unionization rates have remained low (Gurley). When unions are strong, workers have collective bargaining power and can fight for higher wages, better benefits, and stronger protections. The decline of unions, in conjunction with rising corporate power, has kept wages low because companies can fight pro-worker legislation (Krueger and Posner).

Unique to the ongoing pandemic, the prevalence of working from home has exploded, largely driven by white-collar workers. These professionals tend to have higher incomes than essential workers, who are unable to work from home. Thus, some essential workers—especially those with compromised immune systems or other conditions that increase the risk of severe illness—must choose the lesser of two evils between a loss of income and a loss of health. The higher unemployment rate of lower-income workers reflects this difficult choice.

To combat these drivers of income inequality, low-wage workers must be confident that they will be able to survive even if they challenge the status quo, whether by standing up to shareholder interests, unionizing in the face of corporate opposition, or putting their health before their pay. Government can, and should, help guarantee this survival.

Rationalizing Intervention

The once-in-a-century pandemic we are facing has impacted low-income families in many ways beyond reducing their incomes. Of particular importance in the current circumstances is the lack of access to telemedicine due to the income-based digital divide (Cherewka). As proposed in the Declaration of Independence, humans have an unalienable right to life, and “to secure these rights, Governments are instituted” (“Declaration of Independence”). This puts the responsibility for intervention squarely on the shoulders of the government.

Furthermore, consider the mission statement of the California Health & Human Services Agency, which you oversee: 

All Californians, especially those most at risk or in need, have the opportunity to enjoy a high quality of life as measured by the sound physical, mental and financial health of children, adolescents and adults; strong and well-functioning families; safe and sustainable communities; and dignity for all. (“About Us Chhs”)

Consistent with this mission statement, it is the responsibility of your agency to drive policies that enable a high standard of living. Low-income families—or no-income families, for those who have lost jobs—are very much in need. You owe them support.

Rebutting Counterarguments

Fiscal concerns are often raised when government action is proposed to address an issue. While this may typically be cause for debate, the current situation is different: the cost of inaction exceeds the cost of action. According to projections from the California Department of Finance in May 2020, the state was expected to lose $41.2 billion in revenue through fiscal year 2020-21 (“Fiscal Update 2020-21”). While this is already a significant loss in and of itself, a protracted recovery would keep revenues low for longer. Thus, the government should spend proactively to prevent further losses. We must also not discount the additional economic, social, and personal costs of illness treatments and deaths.

Another rationale for government inaction revolves around the idea of the “free” market setting prices, including for labor, without government intervention. However, markets owe their very existence to government intervention in the form of laws and regulations that create barriers to entry (Reich 16). These barriers, when properly designed protect innovation without completely stifling competition. Furthermore, the market is neither as free nor as fair as its proponents suggest; its shortcomings are in fact why regulations are necessary. Particularly in as unprecedented a situation as the one at present, governments must act in the interest of social good rather than letting the market reign.

Policy Objectives

To preserve the right to life, we must ensure that basic needs—food, water, shelter, and clothing—and healthcare requirements are universally met for all Californians. Then, after stopping the pandemic-induced decline of quality of life, we should work toward reducing the disparity between the 90th and 10th income percentiles.