An Inclusive Post‐​COVID Recovery

As the nation reopens in the wake of COVID-19, we have the opportunity to ensure that economic recovery is fully shared by everyone.

Professionals seated with folders on their laps waiting
  • Unnecessary Occupational Licensing Regulations
  • Unnecessary Occupational Zoning
  • Availability and Affordability of Childcare
  • Minimum Wage Increases
  • Barriers to Low-Cost Housing
  • Conclusion

State and local governments should

  • eliminate unnecessary occupational licensing regulations;

  • eliminate occupational zoning, particularly prohibitions on working from home;

  • deregulate childcare to increase its availability and affordability;

  • suspend scheduled minimum wage increases; and

  • eliminate barriers to low‐​cost housing.


Whatever one’s opinion of the federal and state government response to the COVID-19 pandemic, the virus and associated “shelter at home” orders clearly had a devastating impact on the U.S. economy. Unemployment peaked at 14.7 percent and, as of summer 2020, remained above 10 percent. By some estimates, as many as 1 out of every 50 small businesses in America were forced to close in only the first two months of the pandemic.

But, unsurprisingly, low‐​income Americans, disproportionately communities of color, have struggled most. Americans in poor communities were the most likely to lose their jobs, see businesses in their neighborhoods fail, and lack the savings or other resources needed to ride out the damage. As the Bureau of Labor Statistics points out, “occupations with lower wages are more common in the shutdown sectors than elsewhere in the economy.… Consequently, shutdown policies disproportionately affect workers in lower paying jobs.” Among the industry sectors most impacted are restaurants and bars (12.3 million workers), retail (6.5 million), travel and transportation (3.5 million), entertainment (2.6 million), and personal services (2.1 million)—all businesses dominated by low wages.

Roughly a third of Americans report that either they or someone in their household has lost their job or taken a pay cut because of the pandemic. But Latinos (61 percent) and African Americans (44 percent) made up the majority of people who lost jobs or wages. In addition, this is the first economic downturn since 1969 in which more women than men lost their jobs.

Many poor and minority communities were living on the economic edge before the pandemic. The additional suffering that COVID-19 imposed simply heightens the economic divide.

Pro‐​growth policies generally will be necessary to rebuild the economy. Nothing reduces poverty as much as economic growth, which is why growth‐​producing policies such as lower taxes and less regulation are the most effective anti‐​poverty programs.

But, as I wrote in my 2018 book, The Inclusive Economy, we also need to ensure that poor Americans can fully participate in that economic growth. Economic policy that spurs growth but limits the benefits of that growth to those at the top of the economic and social pyramid will be less successful in reducing poverty, is likely to artificially increase economic inequality, and will almost certainly increase social unrest.

Therefore, any post‐​COVID‐​19 recovery plan must place special emphasis on removing barriers to economic participation in disadvantaged communities.

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Unnecessary Occupational Licensing Regulations

Even if the economy as a whole recovers, many lost jobs are never going to return. Policymakers, therefore, should make it as easy as possible for unemployed workers to move into new situations. One of the biggest barriers to their doing so is occupational licensing requirements.

Nationally, occupational licenses are needed in at least one state for at least 1,100 different professions, including florists, funeral attendants, tree trimmers, and makeup artists. More than a quarter of the workforce must get government permission to practice their professions. While in some cases licensing is essentially a formality, in far too many the education, training, and financial burden can be substantial. One study showed that even for low‐​skilled jobs it takes an average of almost a year of training to become licensed. For example, in Iowa, Nebraska, and South Dakota, it takes 16 months or more to earn a hairdresser license. These training requirements pose a particular burden for Americans who lack the time, money, and other resources to complete them.

Economists across the ideological spectrum agree that licensing restrictions serve as a barrier to entry, increasing wages for those with licenses while simultaneously reducing wages and job opportunities for those without. In addition to making it harder to find a job, occupational licensing requirements can make it harder to create your own job. Many licenses require on‐​the‐​job training, meaning an individual must work for a company before being able to start a business. Estimates show that two million jobs a year are lost due to licensing.

Proponents of licensing often claim that such restrictions are necessary to protect the health and safety of the public. However, studies show that there is often little relationship between the two.

Several states have begun to ease licensing restrictions. While much of the initial relaxing was for health care providers in connection with the pandemic, several states have applied the lessons learned to other occupations as well. Pennsylvania and Iowa have made it easier for ex‐​convicts to get licenses. Arizona and Missouri have made licensing in their states reciprocal with other states. Nebraska and a handful of other states have lowered or subsidized licensing fees for low‐​income applicants. Florida has deregulated more than 30 occupations. According to the Institute for Justice, Florida’s occupational licensing deregulation is the largest in the history of any state.

These are all steps in the right direction and provide excellent starting points. However, all states can and should go even further, reviewing all current occupational licensing requirements with an eye toward standardizing requirements, reducing costs, and eliminating restrictions that are not related to public safety.

Unnecessary Occupational Zoning

Telecommuting and other “work from home” opportunities have expanded dramatically since the start of the pandemic. Some estimates suggest that 42 percent of workers have been working from their homes. However, there has been a significant class divide for workers able to take advantage of this trend.

Roughly a quarter of corporate executives, IT managers, financial analysts, accountants, and insurance underwriters have opportunities to work from home, as do roughly 14 percent of “professional and related” workers, such as lawyers, software designers, scientists, and engineers. For workers in occupations that fall in the top 10 percent of earnings, more than a quarter have telecommuting options. However, less than 1 percent of workers in occupations with average wages in the bottom 25 percent have the same options. In the bottom 10 percent of average‐​wage occupations, the percentage of workers who can work from home is so small that the Bureau of Labor Statistics cannot even measure it.

Some job categories will never be easily transferable to telecommuting. However, even when they can be, there are numerous regulations and zoning laws limiting the type of jobs that can be done from home, the number of people that can work there, and the time that workers can spend in your home. For example, in many areas no more than one person from outside your family can work in your home at a time.

While almost no one wants a hog farm opening next door, those rare cases are best handled through traditional nuisance complaints. Meanwhile, the types of businesses most often outlawed through zoning and other land‐​use regulations are those that can be started with minimal capital investment or in industries such as childcare, beauty, catering, baking, and auto repair. Some communities, such as Nashville, Tennessee, go so far as to bar private music lessons in your home.

States and localities should carefully review their occupational zoning and land‐​use policies to allow more small businesses and telecommuting options in previously restricted communities.

Availability and Affordability of Childcare

The pandemic has disrupted childcare arrangements for many parents. Many schools and childcare centers for preschool‐​age children may not reopen this year, and many that are reopening have been delayed or limited. The need for social distancing also has closed many informal family and neighborhood childcare arrangements. The Center for American Progress estimates that even after the economy fully reopens, there will be 4.5 million fewer childcare slots, a 50 percent decline since before the pandemic.

Latino and African American communities that suffered from childcare shortages pre‐​pandemic will be most affected by the expansion of childcare deserts. At the same time, low‐​wage workers, disproportionately Latinos and African Americans, are more likely to be working in the sort of jobs that cannot easily be done from home. It may be difficult for white‐​collar workers to juggle telecommuting with caring for their children, but that is often not even an option for low‐​wage workers. The result likely is forcing these workers, particularly single mothers, out of the labor force.

State and local governments, therefore, should take steps to increase the availability of childcare options. That means a thorough examination of existing licensing and regulatory regimes.

In most states it is illegal to operate an unlicensed childcare center, with a small number of exceptions for churches. Few would oppose regulations designed to ensure the health and safety of children in these settings. But many regulations have nothing to do with such concerns. Rather, they are designed to benefit large institutional daycare providers and professional childcare workers at the expense of smaller or more informal arrangements. For example, many states require both basic and continuing teacher training for childcare workers, impose English language proficiency requirements (even in largely non‐​English speaking communities), mandate child‐​to‐​staff ratios, and cap the number of children per center. These unnecessary regulations can add substantially to the cost of childcare. For instance, decreasing the staff‐​to‐​child ratio by even one child can increase childcare costs by as much as 20 percent. With the cost of childcare averaging more than $10,000 per child, even a small increase can impose extreme hardship on low‐​income families.

And while much recent debate has focused on subsidizing childcare, those subsidies frequently come with strings that actually limit childcare options. However, surveys show that low‐​income parents prefer the type of informal childcare arrangements that are generally ineligible for subsidies.

Rather than chase rising costs with more and more subsidies—and providing a windfall to corporate daycare—we should focus on getting rid of regulations that make it hard for people to find the childcare options that they both want and need.

Minimum Wage Increases

Before the pandemic, many states and municipalities had enacted phased increases in the minimum wage. Some of those increases are scheduled to take place within the next year.

In recent years, there has been increasing disagreement among economists about the impact of modest increases in the minimum wage in a growing economy, though there remains a consensus that there is a tradeoff between increasing incomes for some workers and decreasing employment opportunities for others. Those people most likely to lose out have the least training, employment skills, and attachment to the labor force.

However, this is not a normal, growing economy. Many businesses that rely on minimum wage workers, particularly small, service‐​based businesses, are operating on low profit margins. Pandemic restrictions have further reduced those margins. For example, a restaurant that can only operate at a fraction of its previous capacity will not be able to employ as many people for as many hours at previous wage levels. Mandating an increase in wages under these circumstances will inevitably lead to fewer jobs.

Therefore, at a minimum, states and localities should postpone any scheduled increases in the minimum wage until the pandemic has passed and unemployment has returned to pre‐​pandemic levels.

Barriers to Low‐​Cost Housing

Both renters and landlords have suffered significantly as a result of pandemic job losses. By some estimates, as many as a third of renters did not pay their full rent in May. As a result, roughly 20 million Americans face possible eviction. The pandemic has hit homeowners nearly as hard, particularly in low‐​income and minority communities. For example, roughly 20 percent of Latino homeowners have missed a mortgage payment since the start of the pandemic.

Some of the most frequently proposed ways of dealing with this—rent controls, mortgage moratoriums, eviction bans, and subsidies—could make problems worse by discouraging landlords from renting to low‐​income applicants, as well as deterring both new construction and maintenance of existing stock.

At the heart of the housing affordability problem is a classic issue of supply versus demand. There is a growing demand for housing, both because of natural population growth and as workers move to areas with more job opportunities. Even before the pandemic, the United States needed an additional seven million affordable housing units to keep up with demand. That supply shortage is only going to grow more acute as a result of COVID-19.

While there are many factors behind the shortage of affordable housing, in far too many cases the blame lies with government policies that increase the cost of new building or simply prohibit building in many areas. In particular, zoning laws contribute significantly to the high cost of housing, generally adding 10–30 percent to the cost of a rental unit. In some municipalities, such as Manhattan or San Francisco, zoning can add 50 percent to the cost of housing.

Moreover, comparisons of municipal demographics and zoning restrictions, both now and in the past, show that zoning continues to restrict minority access to white neighborhoods. Essentially, zoning helps price low‐​income families out of certain communities, effectively preventing them from moving to areas with better schools, lower crime rates, and more employment opportunities.

Zoning restrictions take many forms, ranging from height limits and minimum lot sizes to requirements for community review and approval. However, one of the most restrictive forms of zoning is limiting construction solely to single‐​family occupancy. In some states, such as California, more than two‐​thirds of residential land is limited to single‐​family houses. Apartments and other multi‐​family construction is barred.

However, some states and localities, including Oregon, Minneapolis, and Seattle have repealed most single‐​family‐​only zoning. (Contrary to how this is sometimes portrayed, this does not ban single‐​family homes but merely permits the building of other types of units.) Other states should follow this lead.

Conclusion

As the nation reopens in the wake of COVID-19, we have the opportunity to ensure that economic recovery is fully shared by everyone. Indeed, inclusive economic growth is essential if we are to recover. Equally important, we have an opportunity not simply to re‐​create the pre‐​COVID‐​19 economy but to ensure a more fair and equitable one.

Michael D. Tanner

Michael Tanner is a senior fellow at the Cato Institute and heads research into a variety of domestic policies, with an emphasis on poverty and social welfare policy, health care, and Social Security and entitlement reform.