Pastel illustration of people out in society. On the left is a cafe with a woman at a table working on a laptop with a baby next to her in a stroller. A server is carrying a tray. To the right is a person wearing a green coat and looking at their watch. A couple stand together with arms linked. In the background are a train, a grocery store, a bed being made, and other images, as swirling clouds fill the sky.

Ripple Effect

Millions of Americans have lost their jobs over the past year. Across industries, people in small towns and cities have watched their prospects dim. But others are faring better than ever, with their spending reduced and 401(k) statements on the rise. Any discussion surrounding the short- and long-term prospects of the national economy is now rooted in the global pandemic.

To help untangle the complexities of how the U.S. economy will be affected for years to come, Swarthmore economists share perspectives from their areas of expertise. They examine how the pandemic has widened income inequality, the toll it has taken on America’s most vulnerable workers, and how it has frayed at the fabric of the American city.

by Ryan Dougherty

illustrations by Phillip Stern ’84

John Caskey, the Joseph Wharton Professor of Economics, specializes in urban economics and teaches a course called The American City.

The Field Cluster

How has the pandemic affected American cities?

You look at all of these empty white-collar office buildings in downtown cities across the country and wonder if everything will bounce back to where it was.

Will working from home become a more permanent feature of the economy? No one knows. But a fascinating angle of this will be any lasting effects on our traditionally congregated work in downtown office buildings. And if there are, what are you going to do with all that space? Some property owners in New York have already moved to convert them to apartments, thinking they can make more money that way now.

What would be the repercussions of that?

There’s a concept urban economists call agglomeration economies, which is basically just that cities and geographic groups do better when people who are experts in a field cluster together.
John Caskey wearing a white collared shirt and a black zipper jacket, standing outside in a field next to the Philadelphia Museum of Art.
laurence kesterson
John Caskey, the Joseph Wharton Professor of Economics, takes a walk near the Art Museum in the Fairmount section of Philadelphia this spring. “A fascinating angle of this will be any lasting effects on our traditionally congregated work in downtown office buildings,” Caskey says. “And if there are, what are you going to do with all that space?”
So, you’ve had medical researchers in Boston or Philadelphia, and obviously the financial cluster in New York City and tech in Silicon Valley. The argument is that there’s knowledge spillover. For young people especially, there’s the prospect of learning from people in their field and making contacts. Aspiring corporate lawyers want to get into the best corporate law offices as soon as they can, to be around people they can learn from. It’s almost like there’s something in the water: “Here, I can learn to master this.” The argument is that these clusters make the people and the institutions more productive. Now with COVID, with people working at home, you have to wonder whether that can be replicated.

In Search of Solitude

What will continue to draw people to cities?

Ultimately, it’s the density of cities that make them exciting, and that means an emphasis on mass transit. We’ve had a revival of downtown life that has been drawing more and more people — young people, in particular, but also empty nesters who like the density because of all the restaurants and arts, the people out and about, the energy.

That got lost during the pandemic. People avoided mass transit, and many left their apartments to move to the suburbs, temporarily or even permanently. Will it be a lasting effect? You can talk to our students who are graduating. I always used to joke with them; you’d never hear a student say, “I’m going to go live in Reading, Pennsylvania.” They just don’t do that. They all want to go to Boston, Washington, New York, Philadelphia, whatever. They all go to big cities. But now they might be inclined to go somewhere with more natural beauty, more solace, more space.

I talked about cities and productivity that comes from density or agglomeration, this interaction. The other thing that comes from density are the consumer benefits. Dense cities can support music venues, theaters, unique restaurants, and other places people like to go. Those amenities attract people to cities, especially walkable neighborhoods. Of course, that’s not happening right now. I’m optimistic it will come back. It may take time, but I think that while the suburbs are wonderful for parking your car, they’re not the most exciting place for a young person or people who want to surround themselves with vibrancy. There’s still no competition for a dense city.

Learning by Design

It’s one thing to read about economics but quite another to apply what you’re learning in real time, in the real world.

So say the students in Behavioral Economics, a course taught this January by Associate Professor of Economics Syon Bhanot. The students (in groups of four or five) designed behavioral economics experiments that will be implemented with real subjects by the Busara Center for Behavioral Economics, a research partner in Nairobi, Kenya.

“I had done research at Swarthmore, but it was all theoretical,” says Martin Rakowszczyk ’22, an economics and linguistics major from Rockville, Md. “I’ll definitely look back fondly on getting a chance to design experiments that are actually carried out in real life.”

“I think this sort of material, and methods, are hard to learn purely in the abstract,” says Bhanot. “Especially in the remote environment, I feel it is important to apply the concepts in a concrete way — even if it does require students to think fast.”

Faster than ever, in this case. The course took place in Swarthmore’s January term (J-Term), an optional and online-only term offered for the first time this year to help bridge the gap between the fall and spring semesters that was widened by the global pandemic.

More than 120 students enrolled in the course, which mixed prerecorded and live lectures with guest speakers (including faculty from Harvard University, the University of Chicago, and Stanford University) to foster immersive experience.

In designing experiments, some students focused on the familiar, from the economics of risky decisions people make in the age of COVID-19 to how best to encourage healthy food choices. Others veered from areas of personal experience to study things like how Nairobi residents process information about crime in the city, or how to encourage the use of energy-efficient cook stoves in Kenya.

This far-flung collaboration would not have been possible without support from the Lang Center for Civic and Social Responsibility, the Provost’s Office, the Economics Department, and the Global Studies Program — a collection that speaks volumes about the College’s willingness to support students, advance pedagogy, and engage with communities, says Bhanot. — RYAN DOUGHERTY

Mark Kuperberg is a professor of economics whose areas of expertise include macroeconomics.

income inequality

The Congressional Budget Office recently predicted that the U.S. economy will return to its pre-pandemic size by the middle of this year. And yet many experts worry about a “pandemic divide”: tens of millions of Americans in as good or better financial shape than they were at this time last year, and just as many or more devastated by the virus. What is top of mind for you in measuring this economic impact?

Income inequality has been rising for 40 years, and the coronavirus has split the economy even more. There are people like me who still have their income and haven’t really gone out in a year. They’re not spending money. As a result, the personal savings rate is the highest it’s been since 1975. Consumer debt is relatively low, and most Americans have received stimulus checks.
Mark Kuperberg, wearing a red coat, a red plaid scarf, and a garnet Swarthmore mask.
laurence kesterson
The coronavirus has widened the economic divide, says Professor of Economics Mark Kuperberg, on campus this spring. “There’s a lot of people who lost their jobs and are living hand to mouth,” he says.
And then there are a lot of people who lost their jobs and are living hand to mouth. For many of us, the most dangerous thing we’ve done this year is go shopping. But there are millions of people whose jobs have put them at great risk. Going forward, there is the possibility of long-term medical and physical ramifications for those who have been infected, which disproportionately affected low-wage workers and minorities. I worry this could be a problem as the economy recovers.

But on the economic front, the hope is that once the vaccines are widely distributed, people with reserve savings will start spending again. That way the people in the hardest-hit sectors, such as waiters and flight attendants, can at least get back to work. I’m very optimistic that the economy will bounce back — that this whole thing was really a medical problem, not an economics problem. In fact, with the new stimulus package, my biggest worry is that the economy will bounce back too fast and generate inflation.

A Phenomenal Disconnect

How do we understand the tremendous rise of the stock market in the past year, even as cities and town centers closed up and millions were losing their jobs?

Just as the virus put a massive spotlight on inequality, it has done the same with the stock market. People can see that the stock market is not the real economy, that it’s really disconnected.

That was always true, but now it’s right in everybody’s face. There are a lot of reasons for this disconnect, some of them pretty technical. But there is a phenomenal disconnect. Stocks are a very imperfect barometer of future profits, and future corporate profits do not bear a close relationship to the well-being of the average American. Stocks are overwhelmingly owned by the wealthy and mutual funds. The low interest rates have helped the financial sector, too, big time, more than they have mainstream Americans. Then there are the corporate tax cuts: Companies just took the money and bought back their stock, raising prices. And some of the stocks have just gone gangbusters.

That leaves us with two things to be confronted in the U.S. economy: inequality and slow growth. While inequality may be politically difficult to deal with, slow economic growth is a much more complicated thing; you can’t pinpoint the exact reasons for it. Even when the economy is fully employed, it is not growing fast enough in terms of per capita GDP to raise people’s standard of living. So once the economy recovers, these should be the two priorities of the Biden administration.

A Win for the War on Child Poverty

by Jiyoon Kim, Visiting Assistant Professor of Economics
The American Rescue Plan, signed into law by President Joe Biden, includes monthly payments to families with kids 17 and younger with no strings attached. As a result, low- and middle-income families with children will receive a yearly total of $3,000 per child age 6 to 17, and $3,600 per child under 6. Some economists say that the expansions to the child tax credit are expected to cut child poverty roughly in half, together with other policies included in the package.

Given that the pandemic disproportionately hit low-income and low-resourced households, exacerbating the already large disparity in the economy, this relief package has been called a game-changer as it is expected to have a larger reduction in poverty for Black and Hispanic children.

More than 10 million children live below the poverty line in the United States, 3 out of 4 of whom are children of color. Living in poverty is associated with a number of health risks as well as poor cognitive skills, depression, and food insecurity. When a child is exposed to such a disadvantaged environment while growing up, the negative consequences carry over to adulthood, making it harder to leave the poverty cycle and undermining overall intergenerational mobility.

Headshot of Jiyoon Kim, smiling, wearing a chambray blazer over a black top.
Unconditional cash transferred to struggling families with children can be the most powerful anti-poverty policy during this unprecedented time, says Jiyoon Kim.
Unconditional cash directly transferred to struggling families with children can be the most powerful anti-poverty policy during this unprecedented time. Low-income households face a multitude of problems — food insecurity, difficulty paying rent/utilities, lack of transportation, lack of child care resources, unstable employment, etc. The U.S. government has attempted to solve these problems one by one with either in-kind transfers or conditional cash transfers — such as the Supplemental Nutrition Assistance Program, the Low Income Home Energy Assistance Program, transportation subsidies, rent relief, or unemployment benefits — each with different eligibility criteria and requirements, adding administrative complexity. By simply getting cash with no strings attached, low-income households have their full discretion to use it according to their best needs.
More than 10 million children live below the poverty line in the United States, 3 out of 4 of whom are children of color. Living under poverty is associated with a number of health risks as well as poor cognitive skills, depression, and food insecurity.
It seems evident that this new child tax credit will slash the child poverty rate significantly. Then what would be the impact on outcomes for children? Two strands of economic papers are helpful to answer this question. The first, published in the American Economic Review, estimated the long-run impact of cash transfers to poor families on children’s longevity, educational attainment, nutritional status, and income in adulthood by studying the Mother’s Pension program, which ran from 1911 to 1935 as the first government-sponsored welfare program in the U.S. The study found that male children of accepted applicants lived longer, obtained more years of schooling, were less likely to be underweight, and had higher income in adulthood than children of rejected mothers. Second, we could reflect on previous studies examining the Earned Income Tax Credit (EITC), which is given to low- and middle-income individuals with children, conditional on working. These studies found that childhood exposure to the EITC had substantial long-term effects on children’s educational attainment, earnings, and employment status.

Combined with the existing evidence in economics, the expanded child tax credit would not only combat child poverty immediately, but also win the long-term war on poverty and improve intergenerational mobility.

Marcela Escobari ’96 is a senior fellow in global economy and development at the Brookings Institution’s Center for Sustainable Development. She also leads the U.S. Agency for International Development’s operations in Latin America and the Caribbean.

A Labor Force in Jeopardy

In a recent article in The New York Times, you said that even if the economy adds jobs as the coronavirus risk fades, “the rebound won’t help the people that have been hurt the most,” who might have a difficult time reinventing themselves. Where might we expect to see this most?

The article is based on research where we showed that the economy’s current potential to absorb displaced workers is the lowest it has been since at least 2004. Some occupations, especially those that are tech-heavy, are growing. But our data show that these jobs are largely inaccessible to folks displaced from the hardest-hit occupations, such as those in the food service, education, or health care industries. The unique nature of this economic shock was that it directly interfered with the work of the most precarious populations, those working in high-customer-contact occupations. For example, the hospitality industry has long had a high percentage of vulnerable workers, with lower incomes and lesser protections.
Headshot of Marcela Escobari, smiling.
Post-COVID-19, Marcela Escobari ’96 wants companies to measure two things: “whether they are contributing to creating good jobs and are promoting mobility, particularly on the lower end of the wage spectrum.”
As the economy recovers, it’s important that we address the bigger issues of a segmented labor market and of the churning that happens in low-wage work: People can move to new jobs, but usually that happens within a closed cluster of similar occupations. Restaurant workers, domestic workers, and workers in many other occupations have a difficult time steadily moving up; they hit a dead end. This economic immobility is a consequence of trends that have been a long time in the making and that have steadily bifurcated the economy. And then there are newer phenomena like the rise of gig work and contract workers, which increases the precariousness of the labor force, and these folks are often the first ones fired in a downturn.

Worryingly, we have started to see companies forced to learn how to operate and do business with fewer employees. That’s going to be hard to unlearn, and it means that many workers who lost their jobs are going to have a difficult time getting back to their same jobs. And the longer they are out, the harder it becomes to re-enter, and the more detrimental it becomes for them and the next generation.

Here, There, Anywhere

Is it possible this economic downturn may prove unique in terms of offering these vulnerable workers new opportunities?

There’s going to be an opportunity for companies to rethink how they fill jobs that require relatively few technical skills and run on relatively easy-to-learn platforms such as jobs in IT support or HR administration. We’re hoping for companies to shift their focus to re-skilling infrastructure, including community colleges, and be intentional about trying to recruit vulnerable or recently displaced workers. Companies, especially in growing tech, digital, and financial industries, need to be willing to give a chance to folks they normally wouldn’t consider because they lack certain credentials.
Pastel illustration of a man repairing a copier machine on the left, with the same man on the right fixing a computer, with a cat sitting on the desk.
“We want people to see that with a little bit of training, folks displaced from their jobs by the virus are candidates for growing jobs that can be done remotely,” says Marcela Escobari ’96, who examines workforce issues related to COVID-19.
Brookings created an interactive mobility-pathways tool, to make all this data behind our research on job-to-job transitions widely available. We want to show that if you’re looking for a computer network administrator, sure, you can consider a computer scientist, but that you should also consider a printer-repair person, who our data show can make a successful transition to network administrator. We want people to see that with a little bit of training, folks displaced from their jobs by the virus are candidates for growing jobs that can be done remotely.

What about the need for a “demand shock” to help dislocated workers reposition themselves in the economy?

Infrastructure investments, tackling the nation’s long list of projects, could get people back to work. The key there will be considering what specific help workers will need to transition from occupation X to occupation Y. You might look at a town in Pennsylvania, with many middle-aged workers in oil or coal — industries that cause environmental damage and in which job security is fading. The right infrastructure project, one to cap leaky oil wells or one to weatherize buildings and install solar panels, could very quickly absorb that workforce. These are two examples of strategic moves to create or build a public good while also generating more sustainable employment opportunities. As an infrastructure package is discussed in Congress, we can be a lot more purposeful on how it can have the most positive effect on local workers.

What else can be done to help workers?

There are other things the private sector can do that can have dramatic effects on the quality of work, while also contributing to their own long-term success. Higher worker retention improves the bottom line and engages employees. We want companies to measure two things internally — whether they are contributing to creating good jobs and are promoting mobility, particularly on the lower end of the wage spectrum. And public policy needs to play a role. Take the discussions about minimum wage — I don’t know if $15 an hour is the right number, but I know the right number is definitely higher than $7.25. Raising minimum pay is an issue that you don’t just want some companies to do out of their goodwill; you really need everybody to align minimum wages and benefits.
To read more, including from Caskey on the impact that the pandemic has had on pawn shops, which many low-income people use as banks, and from Escobari on why the pandemic hit U.S. workers harder than those of other industrialized countries, CLICK HERE