The COVID-19 recession: Why it’s different, what that means for cities, service workers, education The COVID-19 recession: Why it’s different, what that means for cities, service workers, education

Boston Fed’s Foote weighs pandemic’s impact on issues discussed on Six Hundred Atlantic Boston Fed’s Foote weighs pandemic’s impact on issues discussed on Six Hundred Atlantic

October 23, 2020

Christopher Foote is a senior economist and policy adviser at the Federal Reserve Bank of Boston, a labor market specialist, and a featured voice on the debut season of the Boston Fed’s podcast, Six Hundred Atlantic.

The season focused on growing “geographic disparities” – gaps between regions in variables such as education quality, job opportunity, and health. We caught up with Foote to get some thoughts on how the COVID-19 recession is impacting these gaps, including its effect on education, service workers, and cities. His views are his own, and not the official positions of the Boston Fed or the Federal Reserve System.

How does the COVID-19 recession compare with past recessions?

The COVID recession may not line up with many of the patterns from prior recessions. For example, it’s not disproportionately affecting manufacturing. However, my fear is that this recession could worsen structural problems of inequality, simply because college-educated workers, who can work at home, are probably more insulated from the negative effects of COVID than less-educated workers. Many of those workers are in sectors that can't really operate as efficiently or safely when COVID is a problem, like leisure and hospitality. The negative shock that these workers are receiving now could set them back financially for quite some time, making our inequality problems that much worse.

How might the fact that this recession is caused by a pandemic affect the eventual recovery?

Typically, recessions result from big declines in aggregate demand. Something happens to make people stop buying things like cars, refrigerators, and houses, so it's the goods-producing firms that lay off workers – companies in manufacturing and construction, for example. But with COVID, what's the big thing we can't do now? We can't do a lot of indoor activities where we're sitting next to a bunch of strangers, like we do in bars, restaurants, and movie theaters. That’s why service-producing firms have also laid off workers during the pandemic. Once we have a vaccine, the immediate questions for the economy will be: Are the bars and restaurants going to be able to reopen right away? And how long will it take firms to rebuild employment relationships that were disrupted by the pandemic? If firms can’t reopen quickly, or if it takes time for employers to reconnect with laid-off workers and hire new ones, then the recovery from the COVID recession could be relatively slow, similar to the last several recoveries.

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The Six Hundred Atlantic podcast analyzed a recent Boston Fed conference on geographical inequality in the United States. How is the current recession likely to affect that type of inequality?

To answer that question, it’s helpful to think of policies that address inequality at the person-level vs. the regional level. A person-level policy might focus on improving an individual person’s educational opportunities. A regional policy focuses on improving opportunities for an entire city or town. But as people at the conference pointed out, educational policy has both a person-level and regional component, simply because so much of education is funded at the local level. So if educational opportunities differ across different regions, the local nature of education funding means that there isn't a magic bullet that the federal government can employ to address that disparity. One thing that COVID that might do is boost efforts to improve education in distressed places. For a long time, people have been saying online education could help ameliorate a lot of these educational differences, because it's much cheaper to provide online education than to provide in-person education. What COVID's done is really given a boost to the importance of online education. Pretty much every college professor in the country has had to learn about putting a course online, and that knowledge isn't going to disappear once the pandemic is over. So maybe we'll see online education grow and improve, particularly in areas with less ability to fund education today. If that's the case, it could be one way that educational disparities are reduced.

You mention online education, what about the new prevalence of online work? That would seem to have implications for cities because fewer people are commuting into them.

First, I think when we talk about cities, we have to keep in mind that COVID is not going to be a permanent fixture in American life, because we’ll eventually get a vaccine. But what could be a permanent shock is the prevalence of online work. Firms have learned many people can work quite effectively from home. So after COVID, we might see people coming to the office three days a week, rather than five days a week. If so, more people will probably be willing to live out in the suburbs and commute rather than in the center part of cities. Whether that’s going to mean that a lot of people who worked in New York City in 2019 are going to move to Park City, Utah, and continue to work for their same employers, I don't know. My own guess is that new commuting patterns could have an effect on the mix of housing demand within local housing markets—in center cities versus suburbs. But I don’t know whether COVID is going to cause big shifts in housing demand across completely different labor and housing markets.

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