Tom Barkin

Thank you very much for inviting me to speak with you today. It has been quite a year. Had I been with you a year ago, we would have been in the midst of an unprecedented economic shutdown. Equity markets had just dropped 30 percent. Bond markets were in trouble. Even investment grade credits were struggling to rollover their commercial paper. More than 700,000 people lost their jobs last March, followed by another 20 million in April. Our economy was on the edge of a cliff, and no one knew what was on the other side.

Fiscal and monetary policy responded with overwhelming force. The Fed stepped up early and powerfully. We took our policy rates to zero in mid-March and worked to repair financial markets through our balance sheet, purchasing $1.7 trillion of Treasurys and mortgage-backed securities in March and April. We also relaunched a number of Great Recession-era emergency lending facilities to backstop specific bond markets. 

Congress acted decisively as well. Through multiple fiscal packages, it supported those who lost their jobs as well as small businesses and industries at risk. To put the magnitude of this fiscal response in perspective, the $5.6 trillion in federal relief spending during this crisis is roughly seven times the size of the 2009 American Recovery and Reinvestment Act.

With this support, the economy has come most of the way back. GDP was down 2.4 percent in the fourth quarter compared to a year ago. Our recovery has outpaced the rest of the world with the exception of Asia. Despite 9.5 million job losses, the impact of policy on the economy is quite visible:

• Aggregate disposable income has gone up, not down.
• Households have increased their savings and paid down their credit cards.
• Bank portfolios have remained healthy, given all the support to individuals and businesses.
• The housing market has been strong, in part thanks to low interest rates.
• Increased savings have fueled a shift in spending from services to goods, which has helped manufacturers.
• And the worse off have benefitted from stimulus checks, enhanced unemployment benefits and forbearance.

That said, spending has come back faster than employment. Until recently, job losses on a percentage basis exceeded those seen at the depths of the Great Recession. The economy still has 6.2 percent fewer jobs than in February 2020. 

Still, I am hopeful that we are on the brink of completing the recovery. Vaccines are rolling out, and case rates and hospitalizations are falling. If I could offer an analogy, this recovery is a roller coaster. Every roller coaster has a pause before the final plunge into the unknown. For our economy, winter was the pause, and the final stretch should be something as excess savings and fiscal stimulus fund pent-up demand from consumers exhausted from isolation and freed by vaccines and warmer weather. 

But as we look toward better days, it’s important we don’t lose sight of the long-standing disparities the pandemic has exposed and the opportunities we now to have to invest to address them. Before I say more, I have to note that the views I express are my own and not necessarily those of my colleagues on the Federal Open Market Committee or in the Federal Reserve System.¹

In the rest of my remarks today, I want to talk about three ideas. The first is how this pandemic has disrupted multiple stories we’ve been telling about the economy for the past few decades. The second is how it has exacerbated many of the core challenges our country faces. And finally, I’ll share some ideas about where we can invest to help address those challenges.

So which stories have been upended? The first is a trend you might have heard called “hollowing out,” which refers to growth in high- and low-income jobs at the expense of those in the middle. But the pandemic targeted the low-end this time: It wiped out 37 percent of low-wage jobs between February and April. There's been some recovery, but the lowest-wage jobs were still down 14 percent at the end of December, while higher income jobs were actually up.²

The second story is the triumph of cities: In recent decades, metro areas have seen higher population and employment growth than nonmetro areas. But the pandemic hit urban employment harder, especially early on, since higher population density necessitated earlier and longer shutdowns, and because rural employment is more likely to be in essential industries like agriculture and food production. Now we’re also seeing rising vacancy rates. People are relocating to less expensive cities, or buying homes outside the center city, and they’re not being replaced by the typical influx of college students and young families. And what happens to the businesses and employees that depend on downtown office workers if those people keep working from home?³

The third story that’s been turned on its head is the disparate effect of recessions on men. In the previous three recessions, especially the Great Recession, men suffered higher unemployment than women, as they were disproportionately represented in industries like manufacturing and construction. But the COVID-19 recession hit women’s employment harder, both in job loss and in labor force participation, given their industry mix and the challenges of schools, child care and elder care.

The pandemic has also exposed — and exacerbated — some core challenges our country has been struggling to address. The first is education. For decades, a college degree has been a dividing line: College graduates tend to earn more money, accumulate more wealth and have better health. And during the pandemic, it’s been the line between having a job or not.

During the worst of the downturn last spring, employment for people without a college degree fell almost 20 percent, compared to about 6 percent for people with a degree.⁴ And today, the unemployment rate is 7.2 percent for workers with only a high school diploma versus 3.8 percent for those with a bachelor’s degree. The latter are back at full employment.

Looking toward tomorrow, I think there is a real risk it will get worse. Virtual learning is leaving students behind, especially those who were already vulnerable. We see it in the data, particularly in math,⁵ and it might be even worse than it seems because many students are missing from the data due to declining public school enrollment.⁶ Research tells us it's hard to get back the benefits of early education once it's lost. Back of the envelope, our economists estimate that we could see a decline of 3.8 percent in the share of children with a high school degree and 2.7 percent in the share with a college degree — which adds up to huge losses in the future.⁷ We already see lower community college enrollment, which is especially concerning because that is often the pathway back into the job market.⁸

In short, I’m worried about losing a generation of students and what that means not only for them, but also for our society as a whole. On our website, you can watch a series of dialogues we are having with educators from around our district. The stories are heartbreaking.

The next issue that’s been underscored is the difficulty many people have connecting to jobs. One challenge, of course, is broadband. The crisis has illustrated just how critical broadband is for school, work, e-commerce and telehealth. As recently as 2019, nearly one-third of households still had no strong broadband connection.⁹

Another is transportation. The less fortunate often don’t have a reliable way to get to work, whether that's because public transit doesn't connect to the available jobs or because they don’t have access to a car. And now, of course, mass transit and car-sharing present health risks, so even if you could take a bus to work, maybe the risk just seems too great. Declining ridership is already leading many major transit agencies to cut service, which suggests connection could be even more difficult in the future.

A third issue is addiction. The opioid epidemic has been a crisis for years, and the pandemic is making things worse, as people struggling with addiction have been cut off from family, friends, support networks and medical providers. According to the Centers for Disease Control and Prevention, drug overdose deaths from June 2019 to May 2020 were the most ever recorded in a 12-month period.

And there’s the issue that underpins so many others: racial inequity. The causes are numerous and can be traced to our country’s painful history. The effects are numerous as well, including higher unemployment and worse job losses during downturns, lower educational attainment, lower incomes, less wealth and poorer health. These have all been exacerbated by this crisis in ways that I fear will have long-term repercussions. For example, blacks have died of COVID-19 at 1.4 times the rate of whites, and we see gaps in vaccinations too. Here in South Carolina, blacks make up about 26 percent of the population but only 15 percent of vaccinations. This disproportionate impact of the virus has made many families of color reluctant to send their children back to in-person learning. That’s a choice any parent understands, but it also means those children are at greater risk of falling behind.

So far I’ve talked about the problems. What about solutions? Where can we invest to make things better? The first, and obvious, step is to get the virus under control. Pandemic damage should be much less in a world that is able to return to normal (or something resembling normal) quickly rather than one in which we are still afraid to get into an elevator. The priority now is getting vaccines distributed and safely reopening the economy.

Then we need to address employment. It is well worth exploring targeted support for primary caregivers to return to work or to job retraining programs. This includes support for child care, elder care and safely reopening schools.¹⁰ Employers can play a greater role, and we’ve seen some creative examples, like a hospital in West Virginia that’s offering a proctoring service for its employees’ children.

In addition, the large number of displaced personal contact service workers need help transitioning to new occupations. States can open up licensing and add instructors for in-demand occupations such as nursing or commercial trucking. Funding from Pell Grants and state lotteries could be freed for community college certificate programs. Community colleges can help students access wraparound services to address barriers such as housing and food insecurity, transportation, technology, child care and mental health.

We have to invest further in K-12 education. Many students need extra instruction and tutoring. Schools need the resources to safely teach in person so that parents feel confident allowing their kids to return. Perhaps they need to find a way to leverage this summer to catch up, as we heard from many educators during the second session of our District Dialogues series.

And this crisis has made it crystal clear that we need more investment in broadband. No one should have to do their schoolwork in the parking lot of a McDonald’s, as I heard tell in one small town. But more money isn’t the only answer. Our research has found that upwards of $20 billion has been allocated and not yet spent. The process is complicated and bureaucratic. I’m intrigued by the potential for navigational support to have a big impact.

I’ve left equity for last. In part, that’s because it is hardest to address, and in part it’s because investments in education, employment and connectivity should help us make progress toward this goal. But we need to make these investments with an equity lens. Take vaccines, for example, a critical health lever. An equity perspective has reoriented localities toward marketing efforts to overcome a historic lack of trust in many communities. It has led them to reexamine distribution points to ensure equal access. It has led to models to reduce price as a barrier. Perhaps this method will be relevant in multiple other settings.

The Fed is trying to do its part to limit the increase in disparities from this pandemic as well, through our new long-run policy framework. In our Fed Listens session, we heard from countless people who let us know the least fortunate benefited from the historically strong labor market in 2019. We hope to support bringing more people in from the sidelines by maintaining accommodative monetary policy so long as inflation stays moderated.

To close, I would reiterate that we will see damage from this downturn, as always. But we have in our control the ability to limit the unique damage of this one. I hope we will.

Thanks, and now I look forward to your reactions and questions.