A face mask is seen in front of the New York Stock Exchange (NYSE) on May 26, 2020 at Wall Street in New York City. - Global stock markets climbed Monday, buoyed by the prospect of further easing of coronavirus lockdowns despite sharp increases in case rates in some countries such as Brazil. Over the weekend, US President Donald Trump imposed travel limits on Brazil, now the second worst affected country after the United States, reminding markets that while the coronavirus outlook is better, the crisis is far from over. (Photo by Johannes EISELE / AFP) (Photo by JOHANNES EISELE/AFP via Getty Images)
The US is in a recession. Here's what that means
01:19 - Source: CNN Business
San Francisco CNN Business  — 

Rich Americans who curtailed their spending during the pandemic ended up costing a lot of low-wage workers their jobs, a trend that could hinder an economic recovery, according to Harvard University research released Wednesday.

The top 25% of the wealthiest US households accounted for two-thirds of the declines in credit card spending from the beginning of January to the end of May, whereas the bottom 25% kept their spending patterns the same, researchers found, noting that the high-income individuals reduced their spending primarily because of health concerns – not loss of jobs.

“Zooming into specific subcategories, we find that spending on luxury goods that do not require physical contact – such as landscaping services or home swimming pools – did not fall, while spending at salons and restaurants plummeted,” the report said. “Businesses that offer fewer in person services, such as financial and professional services firms, also experienced much smaller losses.”

Harvard researchers’ deep-dive into consumer spending data and behaviors was part of a larger effort to provide more comprehensive and real-time economic data. The university previously launched the Opportunity Insights Economic Tracker website in conjunction with Brown University and the Bill & Melinda Gates Foundation.

Analyzing spending by ZIP codes, the researchers found that businesses located in the richest areas experienced a 70% decline in revenues. When those sales fell, employees were laid off and the lowest-income workers were disproportionately affected, researchers found.

About 70% of low-wage workers in the most affluent ZIP codes in large cities became unemployed as compared to 30% in the lowest-rent ZIP codes, according to the report.

The cities with some of the biggest drops in small business revenue and low-wage worker hours included New Orleans, Louisiana; Washington, D.C.; Honolulu, Hawaii; and Miami, Florida.

The revenue drop was even sharper for businesses – such as restaurants and hotels – that rely on physical interaction. It tumbled more than 80% in the most affluent areas such as Manhattan’s Upper East Side and Palo Alto, California, according to the report.

Support for low-income individuals – whether through extended unemployment benefits or other assistance programs – should be a focal point to head off further economic losses, the researchers wrote.

“Prior experience suggests that relatively few people move to other labor markets to find new jobs after recessions, leading to long-term income losses in hard-hit areas,” they wrote.

The researchers found that policy efforts such as the Paycheck Protection Program and the cutting of stimulus checks had nominal effects.

The stimulus checks did boost consumer spending, but they didn’t “undo” the losses at the businesses that had the biggest revenue declines, the report said.

Similarly, the PPP loans had minimal effects on job creation in part because a majority of the loans went to professional, scientific and technical services firms, which experienced fewer job losses than other sectors, notably the food services and accommodations industries which accounted for half of the early Covid-19 job losses, according to the report.

The fundamental constraint on spending appears to be health concerns, the researchers said.

“Given this sequence of events, the only path to full economic recovery in the long run is to restore consumer confidence by focusing on health policies that will address the virus itself,” the researchers wrote in a summary accompanying the data.