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Has America got richer since the start of the health crisis?

“About those who had a rather successful year” was the title of an opinion piece published in the New York Times, last December, dedicated to Americans who have not been impacted or even enriched themselves since the start of the health crisis. Enough to feed the reflection on the impact of Covid-19 on the American economy. What are its effects so far and have they really proven to be painless for a whole part of the population?

It should first be remembered that with each new crisis, economists relearn their alphabet by debating the form that a possible recovery could take. The health crisis in the United States has not escaped the rule. As always, the most optimistic dreamed (and still dream) of a recovery in “V”, with a rebound as fast as the recession. Others feared that possible repeat lockdowns would result in a ‘W’ recovery, with economic prospects potentially improving before darkening when the epidemic imposed further restrictions.

Still others emphasized the lasting structural effects of this crisis, which could destroy the American economic fabric to the extent that small and medium-sized businesses would find it difficult to recover from successive lockdowns. The recovery would then be much longer and would require efforts to transform the economy over time. This scenario of a recovery in “U”, even of a recovery in “swoosh” – an even slower rebound than that in “U”. (It is also remarkable that the “swoosh” scenario no longer corresponds to a letter, but to the logo of a major sports brand – thus suggesting that the complexity of this crisis can no longer be reduced to an element of the ‘alphabet). The most pessimistic, on the other hand, bet on the “L”, anticipating a lasting stagnation of the economy like what Japan experienced in the 1990s, the “lost decade”.

Plural American realities and the risk of a “K” recovery

In fact, the hope of a recovery in “V” of the American economy is dwindling. Despite improving prospects in the third quarter of 2020, job creation in the United States slowed markedly by the end of the year. More than 10 million jobs destroyed may have been permanently destroyed. The idea that the rebound after this crisis would be rapid since it was the result of a political will to shut down the economy to protect the population from the pandemic, and not the result of failing economic fundamentals, remains to be demonstrated.

The hypothesis of a “swoosh” recovery would then be all the more credible. However, it does not allow us to understand why so many observers and American economic actors seem to think that a large part of the population and economic sectors are doing well.

There is indeed a remarkable contrast between the economic sectors which have suffered the full brunt of the effects of the pandemic and lockdowns, such as the airline industry, tourism, catering and hospitality, and sectors which have already began to adapt to the demands of the fourth industrial revolution and digitization, such as the new technologies sector and part of retail. Other sectors such as DIY or decoration or online catering and, more generally, which focus on well-being at home have also experienced significant growth. The Americans who could continue to consume during the crisis made the second category live and prosper without ever being able to benefit from the services of the first, thus reinforcing this contrast.

Likewise, there is a striking contrast between the Americans who were able to benefit from the spectacular performance of the financial markets in the midst of a pandemic (thanks to technological stocks in particular which, precisely, knew how to pull out of the game during containment) or who keep or find a job quickly at the end of spring, thanks to the reopening of local economies, and those which depended on economic sectors weakened by the health crisis. They often come from disadvantaged categories of the population or minorities, and often do not have the diplomas or the adequate skills to ride the wave of recovery or to reinvent a professional identity.

It should also be noted that since the summer, 8 million Americans have sunk into poverty and 12 million tenants have accumulated a debt to their owners that exceeds $ 5,000. The rebound in job creation, effective but incomplete, takes on a whole new dimension insofar as it reminds us that an entire part of the labor market risks being transformed by this pandemic. The level of demand for this transformation effort will not be the same depending on whether we are talking about sectors affected durably or not by the pandemic.

It is clear, moreover, that it is not only the richest Americans or the upper middle classes who have succeeded. It is also the Americans who, benefiting from the transformation of the organization of the work and businesses, have been able to settle in other cities in the country where the cost of living (especially in terms of housing) is lower. This transformation in the organization of work and businesses has not taken place everywhere. It is the result of activities in which remote work is possible and in sectors in which companies and the workforce have already adapted to the new tools of digitization, for example.

The inequalities of professional destinies in the aftermath of this crisis are flagrant. The health crisis is only partly responsible, since the sectors and populations that are doing the best had already begun their transformation before the crisis. But this health crisis has all the same accentuated these differences between certain sectors and categories of the population. This is why a new letter was invited into the debate on the form that the taking will take: the “K” with a part of the economy that will adapt, even prosper, even in times of crisis. another part of the economy is at risk of continuing difficulties.

Like a politically divided country, the US economy faces the risk of growing polarization between these two categories of sectors and people.

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By Jeremy Ghez,

Professor of Economics and International Affairs, HEC Paris Business SchoolThe Fact Check US column received support from Craig Newmark Philanthropies, an American foundation that fights against disinformation.

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