The Pandemic Depression
The Global Economy Will Never Be the Same
The novel coronavirus has wreaked havoc on the global economy, shuttering businesses, disrupting supply chains, and causing millions of people to lose their jobs. But the pandemic has been especially devastating for the world’s two billion or so informal workers, who constitute roughly 60 percent of the global labor force and often earn less than $2 per day. These workers, particularly in developing countries, face a looming economic calamity.
Unlike workers in the formal economy, who benefit from legal and social protections, informal workers earn their living without a safety net. They are mostly women and mostly self-employed, engaged in occupations as varied as street vending, domestic work, transportation, and garbage collection. Some also work as off-the-books day laborers in factories, farms, and other formal businesses that don’t extend full rights or protections to all of their employees. Measures taken by many countries to fight the pandemic—including lockdowns implemented without significant assistance for those whose jobs are affected—have threatened the livelihoods of informal workers and pushed them further into poverty, hunger, and homelessness. In just a few weeks, millions of informal jobs have been lost and millions more have been put at risk.
But the crisis in the informal economy is not affecting just poor countries—it is hurting rich ones, too. Nearly a fifth of all workers in the United States are informal, and they are particularly vulnerable to the health threat posed by the new coronavirus as well as to its economic consequences. The popular image of the informal American worker may now be a laborer in the technology-enabled “gig economy”—such as a driver for Uber or Lyft—but the shift toward a larger informal economy began under U.S. President Ronald Reagan. Regulations on employers loosened after 1980, allowing businesses to gradually offload risks onto subcontractors, day laborers, and other flexible workers. Lack of worker protections now makes the coronavirus crisis particularly acute in the United States: it is not just a health crisis or an economic crisis but a deeper social crisis decades in the making.
Throughout the developing world, the pandemic has exposed entrenched social inequalities. In India, where upward of 90 percent of jobs are informal, the International Labor Organization (ILO) estimates that over 400 million workers are likely to sink into deep poverty (defined as earning less than $2 per day) thanks to the nationwide lockdown announced on March 24. The existence of large informal economies in many poor countries also increases the risk that COVID-19, the disease caused by the novel coronavirus, will spread among the most vulnerable workers, who depend on daily earnings and cannot afford to stop working. Informal workers already face adverse health conditions, such as poor nutrition, limited access to sanitation, and chronic disease linked to air and water pollution. Unsurprisingly, informal workers have led protests demanding emergency public assistance in Colombia, Malawi, Uganda, and elsewhere. Some governments have taken small steps to support informal workers during the crisis. For example, in Peru, where almost three-quarters of jobs are informal, the government offered the poorest workers a one-time payment of about $100. But many countries have done little or nothing to help such workers weather the pandemic.
Informal workers are also at risk in the developed world. Since the 1980s, informal labor arrangements have become increasingly common in industrialized nations. As economies became more globalized and governments embraced neoliberalism, demand for cheap and disposable labor increased along with the supply of people willing to work informally, including immigrants and other vulnerable people barred from formal jobs. In the United States, the public blamed big government for the economic turmoil of the 1970s, leading to drastic cuts in welfare spending and the deregulation of numerous industries over the next four decades. In this regulatory vacuum, the informal economy grew: more and more jobs lacked employment security, health-care coverage, sick days, pensions, and severance packages. In other words, informality arose out of deliberate decisions by elected officials to dismantle welfare, ignore or remove hard-fought labor protections, skimp on affordable housing, and, more recently, prioritize financial firms over workers, reject universal health care, and neglect immigration reform.
The share of American workers engaged in informal work has crept steadily higher in recent decades. Between 2005 and 2015, the percentage of U.S. workers whose main jobs were informal rose from ten percent to 16 percent. By 2018, at least a third of the U.S. adult population had engaged in some form of informal work, according to the Federal Reserve. That same year, the ILO estimated that informal employment accounted for 30 million jobs in the United States—or 19 percent of the total labor force. These workers are ill-equipped to handle routine health problems, let alone a pandemic. They have no choice but to go to work, even if they are sick.
What remains of the formal economy depends heavily on goods and services produced and delivered by informal workers.
They are also disproportionately people of color, immigrants, and women. Economic and racial inequality has profoundly affected the way Americans experience the coronavirus crisis. Data from the U.S. Centers for Disease Control and Prevention and from local public health agencies show that African Americans and Latinos are more likely to die from COVID-19 than non-Latino whites, challenging the notion that the disease is a “great leveler.” And death figures for these groups are most likely understated, given that vulnerable minority populations often lack access to testing and health care. Pundits are quick to point to individual “underlying conditions” such as obesity, high blood pressure, and diabetes as an explanation for these disparities. But among the biggest risk factors for COVID-19 are social and economic inequality, which have been exacerbated by the informalization of the economy.
Many at-risk informal workers have suddenly been classified as “essential,” keeping the economy going during the pandemic even though they lack basic labor protections. These include restaurant workers, farmworkers, caretakers, cleaners, and delivery workers—none of whom can work from home. Thanks to this labor, more fortunate Americans can telework safely without having to expose themselves to the virus. What remains of the formal economy depends heavily on goods and services produced and delivered by informal workers.
Such workers have limited access to the health care and other benefits needed to weather the pandemic and keep themselves and others safe. Even those whose employment is technically on the books, such as Uber drivers and Instacart shoppers, face a raft of disadvantages because they are classified as independent contractors. Many struggle to win unemployment benefits because their employers fail to pay insurance premiums or report wage data to state agencies.
It remains unclear how the major relief and emergency measures passed by Congress, allocating over $2 trillion for paid sick leave, unemployment benefits, and food assistance, will help informal workers, because these measures contain onerous eligibility requirements and significant loopholes. But they likely won’t help the millions of informal workers who are unable to document wages and hours of work prior to the pandemic or who are ineligible for food stamps and sick leave because of their immigration status. What is clear is that the pandemic has deepened the precariousness of informal work in the United States, just as it has in India and other developing countries. Many workers don’t know how they will pay for their next meal, let alone their rent, making it more likely that they will continue working regardless of the risk.
Major crises sometimes expose the root causes of societal and economic problems, encouraging reform and change. The Great Depression set in motion the New Deal, which created the foundation of a new social contract that was further solidified in the years following World War II. The New Deal put in place social safety nets and laid the groundwork for more collective bargaining, facilitating the growth of the middle class, expanding social and legal protections of workers, and formalizing economic security for most working people.
Since the Great Depression, however, subsequent economic crises have had the opposite effect. They have allowed legislators to gut existing welfare programs, relax government regulations, demonize immigrants, and bail out large corporations that often rely on informal workers to fill their most menial jobs. The five major recessions since the early 1970s have eroded much of the country’s social safety net, driving many workers into the informal economy. In fact, net job growth in the decade after the Great Recession of 2008 was driven almost entirely by jobs created in the informal economy. The United States has created “bad jobs” much faster than “good jobs,” and American workers are suffering as a result. The employment figures much touted by U.S. President Donald Trump prior to the pandemic masked the fact that 44 percent of workers, or 53 million people, earned low wages, as defined by researchers at the Brookings Institution. Many of these workers were informal, laboring without legal and social protections.
It doesn’t have to be this way. The coronavirus pandemic seems to have generated an upsurge of solidarity. A number of organizations, such as the One Fair Wage Emergency Fund, the Restaurant Workers’ Community Foundation, the National Domestic Workers Alliance, and the Undocumented Workers Relief Funds, have stepped up to protect informal workers and fill the gaps left by government programs in various U.S. cities. Although the work of these organizations is extremely important, it is not enough. If Americans want to minimize the most pernicious effects of the current crisis and better prepare for future crises, they must expand the social safety net and extend protections to informal workers.
The highly politicized protests to end state-imposed stay-at-home orders in Florida, Michigan, Oklahoma, and other states may be intemperate and even reckless, but they reflect deep economic insecurities among middle- and low-income Americans. Unfortunately, these demonstrations attack the wrong target. It is not the lockdowns that have caused economic insecurity but the informalization of the economy that has taken place in recent decades. To build a stronger country and healthier society, the United States must start using its coronavirus relief programs to require and provide greater protections for all working people, formalizing the informal economy by recognizing its significance.
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