COVID-19 segregating our economy

4 steps our state, local leaders can take

IT’S NOW CLEAR that COVID-19 is disproportionately infecting and killing people of color across the country. Over the coming months, the economic dimension of this crisis will also disproportionately harm business owners and job-seekers of color. So far, the federal government’s response only exacerbates underlying racial economic gaps. As with so many other aspects of this crisis, it’s up to state and local leaders to take the lead and create opportunities for business owners and job seekers of color.

The $350 billion small business lending program in the CARES Act will have an exclusionary effect on business owners of color. The criteria for Paycheck Protection Program (PPP) loans exclude business owners who are on parole, probation, or have been convicted of a felony in the past five years. Additionally, the private sector banks administering the program have begun to make loans prioritizing businesses that already have a line of credit at the bank in question.

Given that people of color already experience discrimination in accessing credit, this private sector practice will compound their disadvantage. It’s obvious that these two aspects of the program will entrench racial inequities. People of color already suffer from racially biased policing and incarceration, so this bar on federal small business funds will magnify that bias. Furthermore, formerly incarcerated people frequently rely on entrepreneurship because they suffer discrimination as job seekers. For instance, businesses started in Boston’s Second Chance U., Project Entrepreneur at Boston College Law School, and InnerCity Weightlifting, just to name a few, may not be able to access PPP loans and may need to shut down.

Job seekers of color consistently have worse labor market outcomes than white workers, even after accounting for differences in education, age, and other factors. In response to economic downturns, they are “first fired, last hired.” Our nascent economic crisis will be no different–in fact, it may be worse because people of color are suffering physical harms from COVID-19 in addition to economic displacement.

Because the federal government has done nothing to remedy these racial gaps in economic hardship, we urge state and local leaders to promote racial equity in the following four ways.

  1. Local small business relief–Prioritize local relief loans and grants for businesses that can’t access federal stimulus funds. States and cities are setting up their own business relief funds, including Boston’s Small Business Relief Fund. Policymakers should carve out resources for businesses owned by formerly incarcerated people and those who can show they have been turned down by private banks administering the CARES Act loans.
  2. Targeted training–Subsidize job training and transition programs for in-demand sectors. In the short term, local funding could subsidize the transition of recently unemployed workers into the health sector, where demand will be high for at least the coming momth or two. In the longer term, training should be offered for workers to transition to jobs that enable a transition to a greener economy. For instance, one initiative in New York City’s “Community Retrofit” program should serve as a model for our policymakers. BlocPower, a private company contracting with the city, provides job training for people in low-income communities, who then work on retrofitting buildings across the city to be more energy efficient. We should subsidize training programs like this one for the Greater Boston region (retrofitting buildings, building bike or bus lanes, and so on).
  3. Experiential Hiring–Incentivize the adoption of experiential, objective hiring rather than credential and interview-based hiring. Traditional hiring, which focuses on resume credentials and personal interviews has been shown to penalize people of color because it “locks in” prior sources of discrimination. Policymakers should incentivize companies to transition to blind and/or experiential (i.e., skill-based) hiring.
  4. Anti-discrimination–Increase disclosure of racial gaps and ramp up enforcement of anti-discrimination laws.  For instance, states could require affirmative disclosure of racial gaps in hiring rates and wages, as some other countries use for gender pay gaps.
Meet the Author

Paul Healy

Student, Yale Law School
Meet the Author

Michael Healy

Student, Georgetown University
In the absence of federal leadership, state and local officials have been stepping up to lead our country through this crisis. Gov. Charlie Baker, Boston Mayor Marty Walsh, and city leaders must seize this opportunity to reduce racial gaps.

Paul Healy and Michael Healy are residents of West Roxbury who study urban economic policy. Paul is a student at Yale Law School and Michael is an undergraduate at Georgetown University.