As joblessness claims have reached record highs during the pandemic, the ultra-rich have lined their pockets. By taking advantage of easy access to PPP loans, tax loopholes and the summer rebound in the stock market, the country’s billionaires have added more than $500 billion to their net worth. Rightfully, outrage abounded. But the divide between the COVID-19 experiences of the ultra-rich and the poor is not the only one to worry about. The gap between upper-income Americans — particularly those who have been able to work remotely — and lower-income individuals will continue to widen, in part due to disparities in household savings.
Most high earners have been able to dodge the income drops that have plagued lower-income individuals throughout the pandemic. According to a report by the Pew Research Center in 2020, 47 percent of lower-income adults lost their jobs or had to take a pay cut, or know someone who did, compared to only 32 percent of upper-income adults. Leisure and hospitality, which includes millions of lower-income restaurant and hotel staff, took the biggest hit: In December 2020, there were 3.9 million fewer workers in the industry than the year before. This is no surprise, given that many high-earning, white collar workers have been able to seamlessly transition into remote work, whereas most low-income, blue collar workers must do their work in person.
And as restaurants and bars have closed or limited capacity and travel plans have been jettisoned, most American households have greatly reduced their spending. But while poor Americans are struggling to make ends meet, high earners have been able to save more money. High earners have historically made up the lion’s share of restaurant spending, but now, some of the dollars formerly used to support local businesses and service workers are going toward retirement savings and future investments. Sadly, few people save up for future restaurant outings, so the excess money in the bank accounts of high earners is likely never going to end up back in the coffers of restaurants or bars. In essence, high-income individuals who tend to use their earnings on consumption, often in support of low-income workers in industries like hospitality and leisure, are hoarding it for themselves.
Whereas COVID-19 has been a boon for savings for high earners, the opposite has been true for those at the bottom of the socioeconomic ladder. A Harvard study found that poor Americans are still spending nearly as much as they used to before the pandemic. This fact, coupled with the income losses poor Americans have experienced, has been calamitous for their savings. The Pew Research survey cited earlier found that 44 percent of lower-income adults have had to dip into savings or retirement accounts to make ends meet, compared to only 16 percent of upper-income individuals. There are racial disparities as well: White people were the least likely to have to use money from their savings, whereas Black and Hispanic people were the most likely.
These disparities are likely to have real consequences further down the road. People tend to save money for their retirement or for big purchases, like college education and down payments on houses. Once the economy fully rebounds, poor Americans will have to reaccumulate the savings that they depleted during the pandemic. They’ll probably be less able to buy a house or pay for their children’s college education — or at least, they’ll have to take on more debt to do so. They are also more likely to have a precarious retirement. There has been much talk lately of a K-shaped recovery — an economic rebound in which the rich see improvement but the situation of the poor worsens — and it appears that disparities in savings will play a role.
Some economists are optimistic that a post-pandemic consumption boom could help correct some of the economic fallout from COVID-19. After over a year with little dining out and few vacations, they presume, Americans will spend at above-average levels, restimulating the economy and bringing jobs back to decimated industries. But given the fact that this economic recession was due to a highly infectious virus, the economic rebound might not be an abrupt shift but rather a plodding crawl. Even as infection rates decrease, Americans could remain frightened to return to in-person establishments, and the economy could remain sluggish. This will be especially true if the vaccine distribution continues at its laggard pace. In turn, disparities in savings will continue to build.
Fortunately, there’s hope with the new Biden administration. With voting majorities in both houses of Congress, the President will have no excuse not to advocate for further stimulus, increasing individual checks as well as assistance to small businesses and the unemployed. Furthermore, both President Biden and his nominee for Treasury Secretary, Janet Yellen ’67, have expressed a desire to engage in deficit spending and advocate for low interest rates, policies that will maximize spending in the economy and hopefully lessen the recession’s disparate impacts.
The savings disparity is one of many reasons the U.S. is expected to undergo a K-shaped recovery. And since savings contribute to an individual’s long-term economic well-being, this disparity could have lasting impacts on wealth distribution well into the future. But while further stimulus and loose monetary policy will be an effective measure to curb this problem in the short-term, there must also be a longer-term commitment toward building an economy where shocks like COVID-19 don’t produce this much inequality. The Biden administration and Congress must view current inequality as a call for long-term, structural changes to our economic system. Working class America is depending on them.
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