Policies to Help the Working Class in the Aftermath of COVID-19: Lessons from the Great Recession

• Published date: 01 May 2021
• Author: Richard V. Burkhauser,Kevin Corinth,Douglas Holtz-Eakin
• DOI: 10.1177/00027162211031772
• Date: 01 May 2021
• Subject Matter: Policy Perspectives

314 ANNALS, AAPSS, 695, May 2021

DOI: 10.1177/00027162211031772

Policies to Help

the Working

Class in the

Aftermath of

COVID-19:

Lessons from

the Great

Recession

By

RICHARD V. BURKHAUSER,

KEVIN CORINTH,

and

DOUGLAS HOLTZ-EAKIN

1031772ANN THE ANNALS OF THE AMERICAN ACADEMYPOLICIES TO HELP THE WORKING CLASS AFTER COVID-19

research-article2021

The COVID-19 pandemic and the associated

government-mandated shutdowns caused a historic

shock to the U.S. economy and a disproportionate job

loss concentrated among the working class. While an

unprecedented social safety net policy response suc-

cessfully offset earnings losses among lower-wage

workers, the risk of continued and persistent unem-

ployment remains higher among the working class. The

key lesson from the Great Recession is that strong

economic growth and a hot labor market do more to

improve the economic well-being of the working class

and historically disadvantaged groups than a slow

recovery that relies on safety net policies to help

replace lost earnings. Thus, the best way to prevent a

“k-shaped” recovery is to ensure that safety net policies

do not interfere with a return to the strong pre-pan-

demic economy once the health risk subsides and that

progrowth policies that incentivize business investment

and hiring are maintained.

Keywords: COVID-19 Recession; Great Recession;

income growth; employment; safety net

policy; working class

The Great Recession resulted in a deep and

prolonged reduction in employment in the

United States. Between the eve of the Great

Recession in November 2007 and just under

two years later in October 2009, the unemploy-

ment rate more than doubled from 4.7 percent

to 10.0 percent (U.S. Bureau of Labor Statistics

[BLS] 2021). It took nine years for the unem-

ployment rate to return to its pre-recession

level of 4.7 percent in 2016 (BLS 2021). It

took even longer, 12 years, for the prime age

labor force participation rate to return to its

Richard V. Burkhauser is Emeritus Sarah Gibson

Blanding Professor of Public Policy at Cornell

University. Previously he held tenured positions in eco-

nomics at Vanderbilt and Syracuse University. He was

president of APPAM in 2010. He was also a member of

the Council of Economic Advisors from September

2017 to May 2019.

Correspondence: kcorinth@uchicago.edu

POLICIES TO HELP THE WORKING CLASS AFTER COVID-19 315

pre-recession level (BLS 2021). As a result of declining employment, median

household market income (which excludes government taxes and transfers as

well as the market value of health insurance) fell by 12 percent from 2007 to

2011, and did not fully recover until 2017, as we document below using data from

the Current Population Survey–Annual Social and Economic Supplement (CPS-

ASEC). (See the appendix for details of this and other income series estimates.)

In response to the Great Recession, the federal government initiated strong

social safety net policies to blunt the loss in household market income.

Unemployment insurance (UI) was eventually expanded to 99 weeks in many

states (Congressional Research Service [CRS] 2014). Work requirements in the

Supplemental Nutrition Assistance Program (SNAP) for nondisabled adults with-

out dependents were waived in all states, and most states still had not fully rein-

stated work requirements by the end of 2019 (U.S. Department of Agriculture

[USDA] 2021). Though not directly linked to the response to the Great

Recession, the final phase-in of the Affordable Care Act substantially expanded

public health insurance in 2014. These government policies mitigated the loss in

market income. Based on our fullest income measure, median household income

(including market income, government taxes, and transfers, as well as the market

value of employer- and government-provided health insurance), remained stable

between 2007 and 2014, never falling more than 1 percent below its pre-recession

level (as we show here using CPS-ASEC data).

While the safety net response to the Great Recession helped to preserve the

incomes of middle-class households and fended off an increase in inequality, it

came with a cost—discouraging work and thus contributing to prolonged labor

market weakness. As we discuss, the extended duration of UI as well as work

disincentives in safety net programs slowed the return to employment in the

aftermath of the Great Recession. Of course, the structural causes of the Great

Recession—a financial and housing market crisis whose negative effects ramified

throughout the economy—would have prevented a swift recovery even in the

absence of a strong safety net response. But the extended duration of these poli-

cies may have played a role in producing a historically slow recovery.

Nonetheless, this recovery period ultimately proved to be longer lasting and

more far reaching across the income distribution than most analysts predicted.

Between 2014 and 2019 (the peak year of the 2007–2019 business cycle), both

market income and our fuller measures of income grew substantially for the

median household (documented here using CPS-ASEC data). Wages grew fast-

est at the bottom of the distribution. Progrowth policies played an important role

Kevin Corinth is the executive director of the Comprehensive Income Dataset Project at the

University of Chicago Harris School of Public Policy. He previously served as chief economist

at the Council of Economic Advisers and as a research fellow at the American Enterprise

Institute.

Douglas Holtz-Eakin is the president of the American Action Forum. He previously served as

director of the Congressional Budget Office, chief economist at the Council of Economic

Advisers, chief economic policy advisor for the John McCain presidential campaign, and as a

professor at Syracuse University and Columbia University.