Who has been hurt by the shutdown the most?

Let us take two individuals for instance; a middle-aged small business owner and a middle-aged worker in the technology industry. If none of these individuals has an underlying condition, statistically speaking they should face more or less similar levels of mortality risk from Covid-19. However, objectively speaking, the business owner faces a higher risk of economic ruin if the government mandates a shutdown, the technology worker does not.

Therefore, given the option to decide whether the government should shut down or not, these two people may likely support different decisions. That is the technology worker would support or be indifferent to shutdown. And the business owner would not support a shutdown. However, chances also are that the business owner would decide shutting down is the best option for him or her based on some factors we are not aware of. In the end, there is no way of knowing what everyone’s best response to the coronavirus would be; we all face different choices and we calculate our costs differently.

The fact that individuals react differently to phenomenon has been one of the biggest criticisms against any utilization of a “one size fits all approach” to public policy. Because planning bodies lack decentralized knowledge, they treat all individuals as facing the same opportunity costs, when that is not the case. Central planners, therefore, enact policies that would not in reality benefit everyone but may appear beneficial based solely on the fact that individual differences have not been taken into account.

The shutdown

This has been true about the shutdowns. Generally, different individuals face different levels of risks to contracting and even dying from Covid-19. Additionally, different individuals face different levels of how risk to certain economic decisions. Despite this fact, governments have mandated one size fits all approaches to shutdown, locking down healthy individuals, and subjecting businesses to arbitrarily decided rules. Due to this, some groups have been hurt more than others, being unable to minimize their economic fallout.

Unfortunately, it is disadvantaged groups that have been forced to carry the brunt of this one size fits all approach to the pandemic. Among these groups that will pay the cost of not being given the choice to carry their own choices in regards to this pandemic include; working mothers, low-income workers, small business owners, minority business owners, and school children.

Working mothers

Women compared to working men have suffered the most job losses, for a number of reasons. The main reason being the fact that the service sector, which has been the hardest hit industry, has a high proportion of women workers than men. Thereby women have been disproportionately affected by the job losses that have plagued the service industry.

Additionally, working women have also been plagued with childcare issues. The coronavirus pandemic, or rather response to the pandemic has exacerbated the already existent childcare crisis, leaving mothers vulnerable. Health mandates, as well as executive orders, have reduced the capacity for childcare centers and forced other ones to close down. This has led to a shortage of access to childcare services forcing some working parents, mostly women, to leave the labor force. School closings have also been a big contributing factor to this phenomenon.

According to the Chicago Tribune,

Early in the pandemic, moms of school-age children from early closure states were about 68% more likely to voluntarily leave their jobs than moms in states that had not yet closed, according to a study by the Minneapolis Federal Reserve. Compared with dads, moms were about 50% more likely to take leave.

….

A September survey of more than 40,000 North American workers by consulting firmMcKinsey found 1 in 3 mothers has considered leaving the workforce or scaling back her career because of the pandemic. Among those considering a change, the majority cite child care as the primary reason.

This has a tremendous impact on women’s long-term career prospects. People who reduce their work hours or leave the workforce often lose advancement opportunities, skills, and also wages and benefits.

Low-income workers

Generally, low-income workers that tend to be low-skilled are concentrated in the service sector. On the other hand, middle income, as well as high-income workers, are concentrated in sectors that allow remote working. This is best displayed by the Federal Reserve report on Economic Wellbeing. This why the shutdown has been so damaging to low-income workers who have suffered the majority of job losses.

For instance, at the height of the state-mandated shutdowns, the state of Minnesota suffered a 50% decrease in leisure and hospitality jobs between May 2019 and May 2020. That is thousands of workers displaced because the government arbitrarily decided that their workplace was not essential. While the hospitality industry has recovered some of its jobs in Minnesota, it is still facing hurdles and possibly a slower recovery.

Small businesses

Small businesses are the backbone of our economy. They are essential for job creation and economic growth. But, small businesses are more vulnerable to economic downturns. Yet rules made in response to the coronavirus did not take this fact into account. Executive orders arbitrarily designated a lot of small businesses as non-essential forcing them to shut down. Additionally, social distancing rules sanitizing mandates created an unfriendly environment for small businesses.

Research has already estimated that by May, about 100,000 small businesses had closed nationwide. This number is likely bigger by now.

As I have written before, this can be explained by the following;

Small businesses have a small cash buffer (number of days a business can continue paying its outflows without bringing money in). On average most small business can only cover a little less than a month of expenses without revenue.  Any occurrence therefore that increases costs or cuts at their revenue source is bound to affect their financial stability. The corona virus has completely cut off revenue for some businesses, and greatly diminished it for others, impacting their survival.

Minority business owners

Even among business owners, different groups were affected differently. According to research that came out in June as states were starting to reopen, minorities experienced the most decrease in business ownership. This potentially goes back to the fact that minority businesses are heavily represented in sectors that were deemed non-essential. The trend is similar when it comes to employment; minorities were hit the hardest when it came to job losses.

Young workers

Compared to other age groups, young workers face high unemployment. And those jumped even higher during the coronavirus recession. This is bad for so many reasons. Firstly, employment provides teenagers with a chance to build skills that are useful in the workforce. High unemployment rates deny a lot of teens the chance to partake in the labor force and build their skill set.

For young workers already in the labor force, economic downturns negatively impact career prospects, subsequently economic well-being. And for college graduates, entering the workforce at a time of recession not only decreases their chance of employment but also decreases their chance of getting a high-paying job even further. And lower entry-level earnings put a lower limit on people’s overall lifetime earnings.

Source: Bureau of Labor Statistics

The School going population

For no good reason, the school closures may be yet the most harmful action against kids yet that states have taken in an effort to respond to the coronavirus. Despite the fact that kids have shown to be at low risk of catching and dying from the coronavirus, states have pursued one size fits all approaches shutting down schools to let kids learn remotely. However, the research points out that kids will be the ones to pay heavily for this. In fact, they have already started paying.

First of all, kids learn better in classroom settings. Not only that, being around fellow kids is good for their overall wellbeing and social development. But kids have been denied the chance to any of these activities. And in addition, remote learning has fallen very short of being a substitute for in-person learning. Research suggests, that kids that have fallen behind during this period are at risk of having their overall future earnings reduced significantly. And this risk is even much greater for low-income students who are at a disadvantage when it comes to remote learning.

Conclusion

This should be a lesson for policymakers pushing for one size fits all approach solutions to any issue in the near future; individuals are different, and it is only them that can decide best what level of risk they can handle.