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Why low-wage workers could be especially hard hit by this recession

This time, it’s the service industry’s turn to make deep sacrifices

Caution tape blocks off customer seating at a Burger King that is open for to-go orders only on March 17 in San Francisco, Calif. (Justin Sullivan/Getty Images)

The coronavirus recession is likely to do something that we haven’t really seen before: It’s going to hammer services, like restaurants and retailers, first.

The closings and temporary shutdowns of so many hotels, restaurants and shops is a necessary step to slow down a global pandemic, but it’s laying waste to an entire sector, especially as states such as Connecticut, Maryland, Ohio and Louisiana block all sit-down dining.

Layoffs intensify, leading to soaring unemployment claims as coronavirus closures continue

The human cost of this service-industry recession will be proportionately higher, because we’re losing lower-wage jobs — and it takes millions of low-paid jobs to account for each percentage point of economic growth lost. In cold accounting terms, two food-services jobs match the value of a single job in manufacturing.

The pain will also be spread throughout the country, as every community relies on jobs in restaurants, bars and retail establishments.

“We recognize that one part of the economy will bear the brunt of this crisis because of the need for social isolation,” Ball State University economist Michael Hicks said, but “we chose to do something that was damaging to them to avoid something worse for everybody else.”

In previous recessions, layoffs hit factories and other producers first. The carnage didn’t spread to bars or bodegas until later, when unemployed factory workers slashed their household spending.

But with the country on lockdown, restaurant workers are suddenly without a job while their peers may still be working — for now, at least — in plants, farms, mines and construction sites. Though they’ll soon slow as well, when service workers can no longer afford their goods.

In Baton Rouge, BRQ chef and part-owner Justin Ferguson had to lay off all but four of his 70-plus staff members after the state banned sit-down dining Tuesday. The cuts included friends who had been with him since the Army veteran and longtime restaurant worker returned home to found the restaurant and bar three years ago.

Ferguson estimated his staff processed 20 takeout orders for lunch on Wednesday, compared with the 250 he might get on a typical weekday. “It’s almost laughable,” he said.

“I’ve had to lay off people that I’ve been close friends with, that have worked with me for the last 15 years,” he said. He gathered his thoughts, thinking out loud. “You feel so defeated, you know?”

This recession will also hit faster. Lower-paid workers are living paycheck to paycheck, and when they’re laid off, their spending plunges and layoffs will spread through companies that depended on them as customers.

The government is asking these workers to perform a vitally important service — to stay home and sacrifice their livelihood to stem the tide of infection — and has a “moral obligation” to pay them accordingly, said Economic Policy Institute economist Josh Bivens.

Politicians have begun to understand that. In the most recent debate, both Democratic presidential candidates have declared that American workers who lost work due to the coronavirus should be “made whole.” The Trump administration has coalesced behind a $1 trillion plan to send money to every family in the country, and influential economists are pushing for an expansion of the unemployment-insurance system.

White House coronavirus plan aims to send $2,000 to many Americans, includes $300 billion for small businesses

“Workers need to be encouraged to stay at home, so you really do need some kind of immediate, fast encouragement of that,” said Mark Muro, director of the Metropolitan Policy Program at the Brookings Institution.

According to economists at the job-review site Glassdoor, the food-service industry has far fewer jobs with work-from-home benefits than any other sector.

Bivens found that, after accounting for lost output and productivity, the economy would shrink by 4.1 percent over the next two quarters, based on new estimates from Deutsche Bank. (GDP was down about 4 percent at the deepest point of the Great Recession, adjusted for inflation.)

That estimate suggests more than $840 billion in lost output over a two-quarter downturn. This figure may still be low, since it already figures in substantial government stimulus and events are moving quickly.

Bivens said that, based on that estimate, the United States would lose about 7.3 million jobs. A more conservative estimate, which he bases on numbers Goldman Sachs released earlier in the week, would be around 3 million.

“If the actual number of jobs lost by the end of the summer is anywhere near this large, it will represent a pace of job loss comparable to the very worst months of the Great Recession,” Bivens wrote. And that’s on the low end.

Unlike the Great Recession, which absolutely crushed manufacturing, the coronavirus recession will be “laser-targeted” at low-wage service jobs, Bivens said. “Given that workers in these sectors are likely to have very little savings to tide them over the economy’s downturn, the ripple effects from the first round of job losses are likely to be far greater,” he added.

The estimates are huge and vague. The range of uncertainty encompasses millions of jobs and hundreds of billions of dollars. To make it a bit more concrete, let’s look at a sector that has been almost obliterated by the downturn.

Front-of-house restaurant staff have one of the most common jobs in America, and it’s one that will barely exist in a world of indefinite lockdowns and takeout meals. About 2.2 million people waited on tables in sit-down restaurants in 2018, the most recent year for which industry data was available. When you add in their managers, hostesses, counter clerks and bussers, they make up about half of the food-service workforce. Another 3.2 million people serve fast food, which may not be hit as hard.

Food-service workers are among the nation’s lowest-paid employees, with waiters and waitresses earning around $25,550 a year. (The Labor Department data set we’re using includes tips.) Their competition at the bottom of the rankings comes from fast-food workers and small, vulnerable sectors, such as casino workers, parking-lot attendants, hairdressers and ushers.

Given their recent earnings, the government would need about $24.5 billion per month to replace the paycheck of all food-services workers. If you just focus on what we’re calling front-of-house, the total’s around $12 billion per month.

The price tag for nationalizing the nation’s entire waitstaff for six months — around $72.3 billion for front-of-house, or $147 billion for the whole industry — fits into larger bailout estimates, though you’d have to double it to account for losses in other industries as well.

A publicly funded waitstaff may not even be as unlikely as it sounds. A $1,000 bailout check would cover almost half of a waiter’s monthly income, and some restaurant workers also will collect unemployment compensation.

But right now, workers in sectors such as food services, where 98 percent of workers don’t have union coverage, appear to be losing their jobs at warp speed.

The light at the end of the tunnel, said Muro, is that — once the coronavirus has been contained and business picks up again — service workers are likely to be hired back rapidly.

People stuck at home will have pretty long shopping lists by the time they're finally allowed to return to normal lives. All that pent-up demand may ensure a speedy recovery once the economy gets back on the rails.

“People want to buy stuff,” Hicks said. “They want to go out and buy a big meal. They want to go to a restaurant and they want to go on a vacation. They want to go to the movie theater. But they can’t because it’s explicitly forbidden.”

Coronavirus: What you need to know

Vaccines: The CDC recommends that everyone age 5 and older get an updated covid booster shot designed to target both the original virus and the omicron variant. Here’s some guidance on when you should get the omicron booster and how vaccine efficacy could be affected by your prior infections.

Variants: Instead of a single new Greek letter variant, a group of immune-evading omicron spinoffs are popping up all over the world. Any dominant variant will likely knock out monoclonal antibodies, targeted drugs that can be used as a treatment or to protect immunocompromised people.

Tripledemic: Hospitals are overwhelmed by a combination of respiratory illnesses, staffing shortages and nursing home closures. And experts believe the problem will deteriorate further in coming months. Here’s how to tell the difference between RSV, the flu and covid-19.

Guidance: CDC guidelines have been confusing — if you get covid, here’s how to tell when you’re no longer contagious. We’ve also created a guide to help you decide when to keep wearing face coverings.

Where do things stand? See the latest coronavirus numbers in the U.S. and across the world. In the U.S., pandemic trends have shifted and now White people are more likely to die from covid than Black people. Nearly nine out of 10 covid deaths are people over the age 65.

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