The pandemic is hardening our two-tier economy, one where those at the top are doing well, but way too many Michiganders still are struggling.
Low-wage workers have suffered the most since the onset of the pandemic and the forecast is that reality will last for years. This repeats the experience during and after the Great Recession.
In an insightful analysis of the economic consequences of our pandemic-driven economy, McKinsey concluded: “Our updated model finds that as of mid-April, 16% of workers earning more than $70,000 a year have become vulnerable. However, almost three-quarters of all vulnerable workers earn less than $40,000 a year.” Those who are vulnerable are suffering permanent layoffs, temporary furloughs, or reductions in hours and pay.
The University of Michigan’s Research Seminar in Quantitative Economics in its Michigan Economic Outlook for 2021-2022 opined that employment in low-wage industries initially fell to 70% of their pre-pandemic levels and projects that employment at the end of 2022 in those low-wage industries will only be 92% of their pre-pandemic levels.
That compares to employment in middle-wage industries initially falling to 85% of pre-pandemic levels and recovering to 98% by the end of 2022. According to the report, employment in high-wage industries initially fell to 89% of pre-pandemic levels and will recover to 101% by the end of 2022.
Prior to the pandemic, 43% of Michigan households were unable to pay for basic necessities, and that was despite an economy that many described as one of the best ever and was characterized by low unemployment, decent economic growth, and record profits and stock market valuations.
The 2019 Michigan economy wasn’t one of our best ever. It was a two-tier economy. There is no such thing as a good economy when four of 10 households (1.6 million Michigan households — many with working adults) cannot pay for basic necessities. As is now clear, far too many of our families pre-pandemic had not been succeeding for far too many years. If they are not succeeding, our state is not succeeding.
The preeminent reason for our two-tier economy is that the economy is producing way too many low-wage jobs. Sixty percent of Michigan jobs pay less than $20 an hour. This is structural. We are not growing our way out of too many low-wage jobs. Lots of businesses that employ lots of people have business models based on low-wage workers.
The pandemic has made crystal clear that there simply are lots of tasks that need to get done that are structurally low-wage work. Every day, in every community in Michigan, we are confronted with the vast number of low-wage workers in the leisure, hospitality and personal services industries who have lost their jobs and no longer can make ends meet. This is in addition to those who get us food and prescription drugs and who care for us who are not only putting their lives on the line to serve us but also are struggling to pay for the necessities.
They live paycheck to paycheck not because they are irresponsibly buying “unnecessary” luxuries, but because they are in low-wage jobs that leave them struggling to pay for the necessities. The reality is that a vast majority of those struggling economically and without an adequate safety net to deal with emergencies are Michiganders who get up every day and work hard to earn a living.
The prime reason for so many struggling is not irresponsible adults coddled by a too-generous public safety net, but rather an economy, even when it is booming, that has too few jobs that pay family-sustaining wages and provide health coverage and paid leave.
The prime economic challenge of our times is having an economy that provides family-sustaining jobs — not just any job — so that all working Michigan households can raise a family and pass on a better opportunity to their children.
We can — and should — debate how to achieve an economy that benefits all. What we should not and cannot ignore is that our economic structure is leaving too many behind. The first step in solving this problem is to recognize that this will not be fixed when the economy starts to grow again. The second step is to change our definition of economic success from a low unemployment rate to a rising household income for all. Then we need to get to work on developing a bipartisan agenda to achieve that mission.
Lou Glazer is president of Michigan Future Inc.