This piece was originally published on EconoFact. Read the full piece here.

The Issue:

The United States government is gearing up to issue immediate direct payments to individuals to provide a financial lifeline at this time of income loss due to business closures and reduced demand for work and services. Such payments would provide an important measure of social insurance to maintain necessary spending on things like housing and food. Practical considerations make it difficult to perfectly target the payments to people who are likely to experience pandemic-induced job loss, but estimates suggest that many millions of Americans and more than a third of workers are likely to need income assistance during this economic slowdown.

Cash payments provide a financial lifeline through this time of income loss. Workers in the hardest hit industries have low earnings and few savings.

(For a larger version of this chart, click here).

The Facts:

Immediate cash payments, in the form of rebates, to U.S. adults during the coronavirus crisis would act as a form of social insurance to help people smooth consumption – that is, lessen their reduction in spending on goods and services – through a period of income loss. Social insurance refers to the government provision of insurance payments to individuals who experience financial challenges in contexts where market failures prevent a well-functioning private insurance market. Perhaps the most well-known example of social insurance is the federal social security program, which is meant to ensure that individuals who can no longer work do not fall into poverty in their old age. Cash payments to individuals at a time of sudden and severe income loss owing to a coronavirus pandemic is a prime example of when social insurance is needed, because private insurance is not available and full self-insurance through people’s own savings is highly improbable. Most American households do not have enough savings that they can readily access to insure themselves against the kind of large financial shock the current pandemic could cause. Only about 40 percent of families have accessible savings equivalent to at least three months of expenses, and less than 30 percent have an equivalent to at least six months of expenses, according to estimates by economists at the Federal Reserve Board.

Who are the workers most likely to need emergency income support during the coronavirus crisis? It is extremely difficult to predict how many of the 164.4 million people who report working for pay at any point during the previous year (representing two-thirds of the roughly 250 million non-institutionalized civilian adults in the United States) will experience reduced hours or earnings as a result of the current coronavirus-related economic slowdown. This will depend on the length of time it takes to slow or halt the rate of virus transmission and the geographic spread of the pandemic. Nonetheless, an analysis by Moody’s Investors Service suggests that the industries likely to experience the greatest financial risks are passenger airlines, gaming, automotive, transportation/services, lodging, leisure, restaurants, and apparel. These industries can be aggregated into four broad categories: leisure and hospitality, transportation, other services, and retail. Workers in these four industries account for nearly 30 percent of the workforce (see table). The median incomes for workers in these four industries are below the national median of $48,700 for full-time wage and salary workers; $20,000 for leisure and hospitality, $42,000 in transportation, $27,000 in retail and $28,000 in other services. More than a third of workers in these four hard-hit industries have children living in their households who need to be fed, sheltered, and cared for. Immediate cash assistance will help families meet children’s basic needs through this crisis. Workers in these industries are spread throughout the country with 17 percent in the Northeast, 38 percent in the South, 20 percent in the Midwest and 25 percent in the West. We also know from existing economic research that male job loss is associated with increased rates of child maltreatment, a link that compounds the imperative of assisting families and getting the economy back on track as quickly as possible.

Read the full piece on Econofact.