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The pandemic is exposing the vulnerabilities of the U.S. service economy

Short-term measures are unlikely to bring back the extraordinary number of jobs lost.

People wait in their cars at Traders Village for the San Antonio Food Bank to begin distribution on April 9. The coronavirus pandemic has provoked a spike in demand for food pantries in the United States. (William Luther/The San Antonio Express-News via AP)

The coronavirus has gutted the U.S. labor market. Total new jobless claims from the past month now exceed 22 million in an economy that a month ago employed 160 million people. That’s more than 1 in 10 workers. That economic fallout from social distancing and stay-at-home orders, part of the effort to slow down the pandemic’s spread, hurts some groups of workers much more than others.

The scale of unemployment is unprecedented

The announcement two weeks ago of 6.6 million new jobless claims was the highest on record — and by a wide margin. It was 10 times larger than the previous one-week high of nearly 700,000 lost jobs set during the Reagan-era recession in October 1982. And last week, an additional 5.2 million people filed claims.

The pandemic, in other words, has been displacing workers at an astonishing speed. Between 1965 and March, jobless claims never grew by more than 45 percent in one week. Last month, they jumped more than 1,000 percent in the third week of March.

The result has been the first negative jobs report in almost a decade, in which net employment shrank by 700,000 jobs in March — a number that doesn’t yet reflect the full brunt of jobless claims. The last time the U.S. economy lost jobs was in September 2010, after the global financial crisis, when U.S. unemployment hit 10 percent.

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Most jobs lost are in the services sector

By far, most American workers labor in the service sector, which includes jobs in retail, information technology and health care, among others. In 1970, manufacturing employed about a quarter of U.S. workers. Today, only about 10 percent of American workers are in manufacturing jobs, like those found in steel and textile mills. Indeed, the explosion of service sector jobs fueled the decade of job growth enjoyed since the Great Recession. Since 2010, the United States added almost 19 million services jobs, with jobs in areas like hospitality and transportation increasing their share of the U.S. workforce. These now account for more than 80 percent of U.S. jobs.

The pandemic has hit these jobs hardest. The latest data show that service-sector businesses shed more than 90 percent of those 22 million jobs, with leisure and hospitality accounting for almost two-thirds of those.

Of course, these are special circumstances. A public health crisis differs from a traditional recession. Governments around the world have taken dramatic steps to contain the pandemic, including travel bans, restaurant closures and stay-at-home orders. All these measures restrict economic activity generally — but they hit the services sector especially hard. It doesn’t just mean empty planes, unused gas stations, vacant hotel rooms and shuttered restaurants. Americans also aren’t using as many professional services, such as real estate, legal and financial services.

Perhaps the best illustration of how many Americans now work in the services sector — or more importantly, have lost that work — is the fact that in March, unemployment rose across every major demographic category, including race, gender and age.

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What policies can help?

Bringing these jobs back — and helping those who’ve lost them — will be quite difficult. First, many service-sector workers have been in minimum-wage jobs or in positions that depend highly on tips. For example, workers laid off from leisure and hospitality jobs averaged just shy of $17 an hour. That’s $12 less than the national average across all industries, and it’s the lowest average pay of any major U.S. industry. That means millions of those now on unemployment were already living paycheck to paycheck. Without work, those people are now in desperate straits.

Second, there are no guarantees that their jobs will come back. Small businesses closed under governors’ orders may never make up the lost revenue and be unable to reopen. Before the pandemic, the U.S. economy was quickly moving away from reliable full-time jobs to shorter-term contracts and freelance work. This crisis may accelerate the growth of the “gig economy,” in which businesses pay people only as they need them, for limited periods, without offering regular salaries or benefits. Millions of workers, already among America’s “working poor,” will be struggling even more to get by.

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With such dire prospects ahead for so many people, observers have been debating a variety of policies to help rescue Americans from another Great Recession, or worse. Some proposals include more robust labor market protections, like paid sick leave, which is currently far from guaranteed to lower-income workers. There are also renewed calls for universal health care, given that there were 27 million uninsured Americans before this crisis, a number that is now rising as people lose their employer-provided coverage.

Coronavirus also touches issues such as affordable housing. Before the crisis, housing prices were higher than average incomes in 70 percent of the country, pricing many Americans out of homeownership. Now, millions of newly unemployed Americans are facing difficulty paying housing costs, giving rise to calls for federal housing vouchers and moratoriums on evictions.

For now, Congress has jumped in to pass relief packages that will temporarily supplement household incomes and support businesses that are struggling to cover payroll obligations while shuttered. However, these will not be enough to keep the working poor afloat in the United States.

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Jeffrey Kucik is an associate professor in the School of Government and Public Policy and the James E. Rogers College of Law (by courtesy) at the University of Arizona.

Hailey Leister is a research fellow at the University of Arizona.