Mapping COVID-19 Impacts on Local Economies Provided by Opportunity Insights

As the COVID-19 pandemic continues to unfold and cases surge as we enter July, the American economy continues to reopen. Although the unemployment rate has come down from its peak of 14.7% in mid-April, a full job market recovery is far from certain. As we contend with this unpredictability and precariousness, the dedicated team at Opportunity Insights provides publicly available real-time economic tracking based on private sector data. The non-partisan nonprofit located at Harvard University seeks to translate insights from rigorous scientific research to policy change by harnessing the power of “big data” using an interdisciplinary approach.

 Throughout the pandemic, Opportunity Insights has tracked economic activity and reports daily statistics on consumer spending, business revenues, employment rates, and other key indicators disaggregated by county, industry, and income group. Using these data, we may glean greater insight into the mechanisms through which COVID-19 has impacted the economy to inform our policy decisions moving forward. Researchers believe a large initial reduction in spending by high-income households driven by health concerns cascaded through the economy, leading to a loss of business and layoffs of low-wage workers at those businesses. 

At the highest level, it is clear since February there has been sharp decrease in GDP and a sharp increase in unemployment. Looking more closely at the factors that caused these outcomes, government statistics reveal that nearly all of the reduction in GDP reflects a reduction in consumer spending. The pattern of spending reductions during the pandemic differs significantly from prior recessions as high-income households cut spending by two-thirds, largely as a function of health concerns rather than a loss of income or purchasing power. As such, small business revenues and jobs have declined most in affluent areas as more than 70% of low-wage workers in the highest-rest ZIP codes were laid off within the first two weeks of the COVID-19 crisis, while only 30% of low-wage workers lost their jobs in the lowest-rent ZIP codes. 

In addition to tracking economic trends, Opportunity Insights provides advanced analysis and evaluation of the policy responses implemented in an effort to mitigate the economic effects of the pandemic. The CARES Act allocated nearly $300 billion in direct payments to households in mid-April. Although these stimulus payments increased spending substantially, they did not ultimately lead to gains in employment or revenues for the businesses most affected by the crisis. Additionally, the $500 billion in loans dedicated to small businesses have had little impact on employment rates. Although we have recently seen increases in employment, this is likely attributable more to an increase in consumer spending as the economic reopens and receding health concerns. 

Given the hypothesized mechanism of economic loss, the team at Opportunity Insights advocates for policies which will restore consumer confidence by focusing on health policies that will address the virus itself. We should be skeptical that traditional economic tools like loans and stimulus payments will have the desired impact on restoring employment because the most fundamental constraint on spending is health concerns. Our legislators should focus on supporting the most vulnerable individuals who have lost their jobs to limit hardship and economic loss, targeted specifically to areas that have suffered the largest losses. The tracker constructed will be invaluable as we move forward through an uncertain Summer and Fall to evaluate policy impacts on an ongoing basis and support economic policy in the age of big data. 

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