Often we read that a current event is different than that which we’ve experienced in the past only to realize that history is actually repeating itself. Well, the impact of Coronavirus on our most vulnerable workers, those making the least in earnings (bottom quartile), is highlighting the fact that circumstance are, in fact, very different this time. As the chart below highlights, job losses in previous recessions have tended to impact those in different earnings categories quite similarly. Sure, the impact on the lowest paid segment of our labor force has tended to be slightly greater with the exception being the 1990 recession. But, we’ve never experienced anything to the degree that Covid-19 has produced.
Workers in the lowest 25% of the labor force based on earnings witnessed job losses that represented more than 30% of their cohort. There has been a bit of a recovery, but for many of these workers in service industries they may be facing extended periods of unemployment, if jobs ever come back. Unfortunately, our country was already experiencing a widening in income disparity and the impact from Covid-19 has only accelerated the gaping differential.
In an age in which many American families are barely able to meet their basic needs, we are watching as the cost of education, healthcare, retirement, etc. continue to grow nearly unabated. Is there any wonder why millions of Americans haven’t been able to save for retirement? Without any discretionary income is it any wonder that “retirement” vehicles such as 401(k) plans aren’t meeting their needs?
Even though defined benefit plans only covered about 40%-45% of the labor force at their peak, the loss of these vehicles today is crushing the retirement dreams for millions of Americans who will never be able to retire with dignity, if they can retire at all. DC plans were established to be supplemental savings accounts. Today, they aren’t supplementing anything, especially for those making less than the median compensation. This income inequality will create major impediments for our economy, as demand for goods and services wanes. I find this situation to be tragic and unacceptable. We need to redouble our efforts as an industry to try and preserve DB plans where possible. DC plans have never been the answer.