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Recession Led by Services Sector Is Particularly Painful for Latino Workers

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07/05/2020 | 05:45am EDT

By Harriet Torry

A dramatic drop in hotel stays, elective surgeries and dining out since the coronavirus outbreak in February is driving a recession that is unlike every other since the Great Depression.

Prior downturns were largely led by lower spending on such things as cars, houses, and factories while this one is hitting the service industries. That change has meant Latino and Hispanic workers are being particularly hard hit, and economists expect the jobs recovery to be slow and halting as Covid-19 cases accelerate around the country.

"This recession is very different; you're seeing it start in the services sector. It's very unique," said Gabriel Mathy, assistant professor of economics at American University in Washington, D.C.

Last year, consumer spending on services made up just under half of the economy, or 47% of gross domestic product, compared with about a quarter 70 years ago. The share was 44% when the 2007-09 recession hit.

Hispanic or Latino workers last year made up 17.6% of the total workforce but accounted for about half of all maids and housekeeping cleaners, painters and roofers, according to the Labor Department.

Services sectors shed jobs in droves in April as coronavirus quarantine orders shut down swaths of the economy. In June, the jobless rate for workers of Hispanic or Latino ethnicity was a seasonally adjusted 14.5%, more than three times its rate at the start of the year.

The Latino unemployment rate dropped 3.1 percentage points from May, a steeper decline than for other groups, but it remained higher than the jobless rate for whites, at 10.1%, and Asians, at 13.8%. The unemployment rate for Black or African-American workers, at 15.4% in June, was higher than the Latino rate.

The Labor Department refers to people who identify themselves as Hispanic, Latino or Spanish in the survey process, who may be of any race.

Thursday's jobs report, which was based on survey data largely collected in mid-June, didn't reflect recent government-mandated business closures and related layoffs. And despite last month's job gains, the overall situation for Latino workers has deteriorated sharply. Before the coronavirus, the unemployment rate for Latino workers had hit an all-time low of 3.9% in September 2019, in records going back to 1973, and wages were rising.

Luis Ruiz, of Orlando, Fla., applied for unemployment benefits in late June, after unsuccessfully searching for a job since March. The 22-year-old recently graduated from Florida Southern College with a communications degree, but interviews for public-relations jobs dried up when companies stopped hiring and started letting staff go.

He recently applied for jobs at big-box stores, "and I get nothing back."

"The bills are still going to come in at the end of the month, and I have to pay them," he said, adding "it's very frustrating that I don't have that financial stability at the moment."

Rafaela Cervantes, who works in housekeeping at the Fontainebleau Hotel in Miami Beach, said "the experience of the pandemic has been very sad and bitter."

She was sent home from work in late March when the city closed hotels. She spent weeks attempting to apply for benefits from Florida's problem-riddled unemployment system.

The 65-year-old, originally from Cuba, only began receiving her benefits in May and returned to work in early June.

"I wanted to start working again because it's a secure thing; the unemployment [system] has been catastrophic," she said. Still, she worries about her health. "We clean rooms of people and we don't know if they're infected or not."

Restaurant owners say they have little sense of when and how consumers will feel safe to eat out again. Latinos make up more than a third of cooks and dining-room attendants, according to the Labor Department.

"This is a supply shock, in the sense that restaurants are no longer able to supply a meal that carries no health risks as they once were able to, as opposed to a demand shock in the sense of a reduction in purchasing power," said Harvard University economist Raj Chetty during a recent online discussion of research documenting the real-time impacts of Covid-19.

High-income households have cut spending more than middle- and low-income Americans, mostly on in-person services like restaurants and entertainment, according to an analysis of credit- and debit-card data by the nonpartisan research group Opportunity Insights.

Laura Pozos left her job working in the kitchen at a McDonald's in Monterey Park, Calif., in early April after a co-worker contracted coronavirus and she felt the restaurant wasn't providing appropriate personal protective equipment, social distancing or disinfecting. The store reduced workers' hours, which meant she could apply for unemployment benefits.

McDonald's USA said its restaurants introduced new safety measures starting in March, including personal protective equipment and social distancing.

Ms. Pozos, originally from Mexico, has a daughter with special needs and is herself at high risk of Covid-19 due to pre-existing health conditions.

"I would be a person of high risk, my age, it's different to being 20 years old," the 58-year-old said. "I don't want to go and get infected. Who's going to watch out for my daughter?"

Marie Mora, professor of economics at the University of Missouri-St. Louis, said, "it's staggering when we look not just at the magnitude but also how quickly" the labor market deteriorated for Hispanic workers. The Latino unemployment rate hit 18.9% in April, 5.9 percentage points higher than the 13% peak in Latino unemployment seen in August 2009 after the last recession.

In the past, spending on services such as health care and haircuts tended to hold up during a downturn because they are usually among the last things to get cut from a family's budget.

Even if the U.S. economy returns to operating at 90%, the remaining 10% will be in sectors where Hispanic workers are more represented, such as restaurants, salons, housekeeping and babysitting, said Alfredo Romero, associate professor of economics at North Carolina A&T State University in Greensboro, N.C.

"That extra 10% doesn't sound like much, but it's where those restaurant- and hospitality services jobs are going to be," he said. "I think the Hispanic unemployment rate is going to remain high for a year or longer," he said.

The pressures on the Hispanic community also affect many of those who didn't lose their jobs. They now have higher risks of coronavirus transmission due to low social-distancing capabilities at jobs like food preparation and supermarkets -- often while living at close quarters in denser neighborhoods, while relying on public transportation.

For Rhonda Trevino, who was born in the U.S. and identifies as Latina, her job at a Cargill Inc. meat processing plant in Friona, Texas, has "been a little stressful, but everything continues to roll."

"It's a little nerve-racking but being a union rep we've got to be strong, pray every day and ask God to help us, and just continue -- it's a day-by-day process," the 51-year-old said.

"The pandemic is falling on those least able to bear its burdens," Federal Reserve Chairman Jerome Powell said May 29. "It is a great increaser of inequality."

Write to Harriet Torry at harriet.torry@wsj.com

 

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