The harsh reality of economic recovery is that not everyone recovers financially during a slump. Persistent or even permanent economic problems—such as long-term unemployment, unskilled worker labour marketplaces, evictions, and foreclosures—trap far too many Americans in terrible economic situations.
However, there are measures that can mitigate this “scarring,” as economists sometimes refer to it, and President Biden’s American Rescue Plan has resulted in the least amount of scarring in at least the last 50 years.
Consider someone who has been unemployed for an extended period of time. While the majority of jobs are likely to return during an economic slump, the number of persons experiencing long-term unemployment—defined as being out of work for at least six months—often remains very high for months after overall unemployment peaks.
Long-term unemployment lingered for years after the early 1980s double-dip recession and well after President Reagan began airing his “Morning in America” advertisements in 1984. While the American Recovery and Reinvestment Act of 2009 helped escape an economic depression, President Obama unsuccessfully pressed a Republican House for a second stimulus measure two years later.
Losing a job is always painful. Unemployment over an extended period of time can result in the loss of a home, marriage, health, emotional well-being, and feeling of self-worth. According to an analysis of 99 research on labour, prolonged unemployment has a more detrimental effect on an adult’s emotional health than the death of a spouse or divorce, and has a particularly severe effect on children. Suicide rates have been observed to increase throughout whole areas with high rates of long-term unemployment.
The American Rescue Plan had a profound effect. Long-term unemployment peaked in March 2021, when the ARP was implemented. Since then, it has returned more than 80% of the way to its February 2020 level. Long-term unemployment fell to its lowest level in more than 70 years over the last ten months.
Long-term unemployment was nearly three times as high three years following the 2007-09 crisis as it is currently. The aid and relief provided by the American Rescue Plan contributed to the development of a robust labour market capable of serving all employees.
Additionally, the ARP has facilitated the entry of new workers into their sectors. A sluggish employment market is more difficult for new workers, who must compete for fewer openings versus more experienced colleagues. It’s especially difficult for people of colour and those without a high school education.
In November 1982, the young unemployment rate hit a record high of 19 percent and remained over 17 percent on average throughout 1983. It persistently maintained over 13% until late December 1986. Though these rates decreased over time, they caused irreversible harm.
Stanford and Northwestern economists discovered that Americans entering the workforce in the early 1980s saw an increase in mortality, were more likely to never marry or have children, and had other lifetime consequences. Jesse Rothstein of the University of California, Berkeley discovered that the continuation of young unemployment over 17% for more than two years following the 2007-09 recession harmed future recruits. He cautioned that the Covid recession—which established a new record for young unemployment in April 2020—had a strong probability of permanently impairing the chances of those entering the workforce.
Rather than that, the American Rescue Plan promised a vibrant employment market for all newcomers. In 2021, the unemployment rate for young employees (16 to 24 years old) fell to its lowest level on record. It is presently at one of the lowest levels in the previous 50 years—less than half the level experienced in the two years after the 2007-09 crisis.
Evictions and foreclosures are another heinous effect of recessions that can continue to wreak havoc on families long after the slump is over. Evicted employees may lose their employment, fall into a cycle of poverty, and watch their children suffer permanent setbacks as a result of having to change schools or relocate to areas with a higher poverty rate.
Additionally, black homeownership has dropped more significantly than white homeownership during the 2007-09 crisis, and the disparity between them reached a 50-year high in 2017. Many black Americans have yet to recoup from the property losses caused by the 2007-09 recession.
Despite unemployment levels reminiscent of the Great Depression, the Covid crisis did not result in a tsunami of evictions or a surge of foreclosures following the moratorium’s lifting. After a rocky start, the ARP’s Emergency Rental Assistance program paid about $20 billion to tenants in 2021 through 3.8 million payments to cover past and projected rent.
According to statistics from Princeton’s Eviction Lab, after the countrywide moratorium expired this summer, eviction filings have averaged barely 60% of pre-pandemic eviction filings between 2012 and 2019. Foreclosures, the scourge of the last financial crisis, reached a record low in 2021.
Add to this that black and Hispanic unemployment rates have fallen rapidly — with Hispanic unemployment having the highest calendar-year decline in history — and that analysts at Columbia University and the Urban Institute believe the ARP may reduce child poverty to a historic low.
Too many detractors of the American Rescue Plan gloss over these extraordinary achievements by making exaggerated assertions about the plan’s inflationary impact. These opponents sometimes think that the entire or almost entire $1.9 trillion earmarked under the ARP went into the economy in 2021, while in fact just about $1 trillion did.
Moody’s Analytics and the San Francisco Federal Reserve anticipated that the ARP contributed just 0.3 percentage point or somewhat less to inflation in 2021 and will contribute between 0.2 and 0.3 percentage point in 2022.
The White House is sympathetic to the strain that global inflation has placed on families’ budgets, but Mr. Biden’s recovery package had a negligible effect on prices and protected Americans from the unprecedented economic threat posed by Covid, while shielding the most vulnerable from long-term economic hardship.
Mr. Sperling serves as the White House’s American Rescue Plan coordinator.