Following two months of economic shutdowns, some state governments began to reopen their economies in May, with the hopes of bringing people back to work and returning to some sense of normalcy. For businesses in the leisure and hospitality industry in particular, the shutdowns were devastating, with nearly 30 percent of jobs lost since February.
But now the country is facing a surge in COVID-19 cases and deaths, driven largely by states that moved to reopen. The latest available employment data, from June, do not capture the full implications of this surge, and some states’ modest economic gains may be lost as they reclose certain businesses. California, for one, has ordered bars to cease all operations and restaurants, wineries, movie theaters, and museums to cease indoor operations as of July 13.
By examining the ups and downs of this sector, we can better understand not only how bad the economic effects of the pandemic have been over the past five months but how much worse they may get.
Leisure and hospitality workers are particularly vulnerable to COVID-19 shutdowns
Businesses in leisure and hospitality (including restaurants, hotels, movie theaters, and spectator sports) are among the most contact intensive, and people engaging in these activities are likely to spread COVID-19.
Only 9 percent of the leisure and hospitality sector’s workers can telework, compared with over 50 percent in the financial activities and information sectors and 30 percent in the manufacturing sector. Many businesses have had to shut down without the option of telework, with the effects dramatically visible in many sectors, including food services. Data from Open Table, the online restaurant reservation service, shows that every state reported a decline in reservations of over 90 percent between March 20 and April 30 compared with the year before.
With a decline in in-person activities and an inability for most employees to do their jobs remotely, leisure and hospitality employment declined dramatically. 23 states and the District of Columbia saw over half of all leisure and hospitality jobs vanish between February and April, the peak of the crisis so far.
Employment has rebounded modestly since then, with all 50 states and DC seeing employment in the leisure and hospitality sector bounce back between May and June. Most notably, Delaware, Nevada, and Rhode Island saw a third or more of leisure and hospitality jobs return over the month. But compared with a year ago, employment was down at least 10 percent in every state except Oklahoma.
For those who have continued to work, adequate safety precautions are not guaranteed, as the adoption of safety measures recommended by the Centers for Disease Control and Prevention, such as the availability of gloves and masks, can vary widely.
(Find the data here)
The crisis has more severely affected some states and workers
According to data from the first quarter of 2020, accommodations and food services contribute most heavily to state gross domestic product (GDP) in Nevada (12.4 percent) and Hawaii (8.5 percent), so it is unsurprising that their unemployment rates remain high (15 percent in Nevada and 14 percent in Hawaii).
(Find the data here)
In both states, it took under 9 weeks after the crisis began in mid-March for cumulative Unemployment Insurance initial claims to surpass total initial claims made during 81 weeks of the Great Recession.
Economic distress within this industry also has troubling racial and ethnic implications. Latinx workers in particular are disproportionately represented in leisure and hospitality work, composing 24 percent of employees. A nationally representative survey found that nearly 60 percent of Hispanic workers lost jobs, work hours, or a portion of their income in March and April. And those who continue to work in low-paying and risky jobs (and are therefore not represented in the unemployment numbers) are more than three times as likely to be infected and twice as likely to die from COVID-19.
An uncertain future for the leisure and hospitality sector
Due to the uncontrolled public health crisis, we are already seeing irreparable economic damage from COVID-19. The future of restaurants in particular is uncertain. Experts have suggested near-term and long-term solutions that include reimagining norms of dine-in and takeout services, making protective gear widely available, extending hyperlocal infrastructure for small businesses, and strengthening community-based food hubs and community-supported agriculture programs. Of course, these interventions are effective only to the extent that they are financially supported and that people follow them.
White House economic adviser Larry Kudlow recently affirmed the need for a fourth phase in federal economic relief packages. Ongoing discussions in Congress include extending the Paycheck Protection Program for small businesses, extending the increased Unemployment Insurance benefits, payroll tax and capital gains tax holidays, and targeting aid to state and local governments. Some of these provisions may alleviate the disproportionate effects on leisure and hospitality workers. Other proposals, like a nonrefundable tax credit to encourage travel and tourism, may not only be dangerous under present circumstances, but also fail to provide direct relief to the industry's workers.
But even with these solutions, an economic rebound depends on reducing the spread of the virus. In at least 25 states, major restrictions have been lifted (or were never introduced), leaving minor restrictions in place for bars, theaters, casinos, and concert halls. But as businesses started to see an uptick in activity, increases in COVID-19 infections led some governors to reverse course.
Jennifer Kovacs, owner of a gym chain in Northern California, told the New York Times that the lockdowns and reversals has hurt her business and left her feeling frustrated and helpless. “This slow reopening isn’t working,” she said. “Shut down everything, shut down every single thing, and keep us home for three weeks. I’d rather do that than this off-on, off-on, off-on. Because every time we do that, we’re losing thousands of dollars.”
These false starts around state reopenings have taught us that the most effective prerequisite to increasing economic activity is reaching a point where community spread is well understood, contact tracing is possible, and workers and customers feel safe and supported.