Fallout From COVID-19 Has Worsened Already Significant Economic Inequality

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Updated on Tuesday, October 6, 2020

In early 2020, the national unemployment rate sat between 3% and 4%. But those low unemployment rates covered up some stark inequalities among demographics.

In January, someone whose highest level of education was a high school degree was nearly twice as likely to be unemployed as someone with a bachelor’s degree, while a Black American was roughly twice as likely to be unemployed as a white American.

Since the start of the coronavirus crisis, those gaps have widened — and new ones have emerged. MagnifyMoney researchers analyzed unemployment rates across various demographics to provide further economic insight.

Key findings

  • The difference in the unemployment rate between white and Black Americans nearly doubled between January and August, from 2.9 percentage points to 5.7 percentage points.
  • The unemployment rate for Asian Americans has more than tripled since January, and the difference in the unemployment rate in August is still 3.4 percentage points higher than that of white Americans. In January, Asian Americans had a slightly lower unemployment rate than white Americans.
    • The unemployment rate difference between white Americans and Black, Latinos and Asian Americans has grown among each demographic from January to August.
  • Those with at least a bachelor’s degree saw their unemployment rate jump from 2% in January to 5.3% in August. But for those without a high school degree, that figure increased from 5.5% in January to 12.6% in August. The difference between the groups increased from 3.5 percentage points to 7.3 percentage points.
  • Americans just starting their careers have had a tougher time than those with experience. Those in the 25-to-34 age group experienced a surge in their unemployment rate from 3.7% in January to 9.7% in August.

2020 unemployment rate by race

We’ve seen wide gaps when comparing 2020 monthly unemployment rates for white, Black, Latino and Asian Americans. Here are the widest gaps seen over various periods so far in 2020:

  • January: 3 percentage points between Asian (3%) and Black (6%) Americans
  • March: 2.7 percentage points between white (4%) and Black (6.7%) Americans
  • April: 4.7 percentage points between white (14.2%) and Latino (18.9%) Americans
  • August: 5.7 percentage points between white (7.3%) and Black (13%) Americans

2020 unemployment rate by education

Across the board so far in 2020, those with less than a high school diploma saw the highest unemployment rates, followed by those who graduated from high school.

As with the other demographics we examined, unemployment rates by education type spiked from March to April. Here’s a closer look:

  • For those with less than a high school diploma: 6.8% to 21.2% (14.4 percentage point increase)
  • For those who graduated from high school: 4.4% to 17.3% (12.9 percentage point increase)
  • For those with some college: 3.7% to 15% (11.3 percentage point increase)
  • For those with a bachelor’s degree: 2.5% to 8.4% (5.9 percentage point increase)

2020 unemployment rate by age

Teens in particular have lost more employment opportunities so far in 2020, which could be related to them tending to be employed for in-person jobs rather than office work that can be done remotely.

Of the demographics we examined, the 31.9% unemployment rate in April for 16- to 19-year-olds was the highest from January to August.

Despite record unemployment, personal savings rate sees spike

Despite high unemployment rates, personal savings rates — the percentage of income left after paying taxes and spending money — have seen a spike this year.

The following chart breaks down personal savings rates by month so far in 2020:

2020 personal savings rate by month
January7.6%
February8.3%
March12.9%
April33.7%
May24.6%
June19.2%
July17.8%
August14.1%

It seems counterintuitive that savings rates would rise during such a difficult economic period, but there are a few reasons this may be occurring, said Ken Tumin, founder of DepositAccounts.

“Many people who didn’t lose their jobs still received the government stimulus checks,” Tumin said. “Also, many people cut back on their spending during social distancing orders.”

Travel, shopping, dining and entertainment options were restricted in many parts of the U.S. for decent stretches of 2020 — and still are in some states.

Tumin said the pandemic and widespread job losses have caused many to worry about the safety of their own jobs, leading to more cautious financial decisions. That fear could have encouraged people to spend less and save more.

Where to keep savings

No. 1: High-yield online savings accounts

High-yield online savings accounts generally provide APYs that are much higher than those offered by brick-and-mortar banks. Consider linking an online savings account with a checking account to electronically transfer money back and forth.

No. 2: Certificates of deposit

Certificates of deposit (CDs) from online banks, as well as CD specials from credit unions, can offer APYs that are higher than what’s available from traditional banks. These can be a good option for those with short-term savings goals in which the money won’t be needed until the CD matures.

No. 3: No-penalty CDs

Going a step further, consider choosing an online bank that offers both savings accounts and no-penalty CDs. Then, use a no-penalty CD to boost the APY without any significant loss of liquidity. No-penalty CDs often have slightly higher APRs than savings accounts, and the rate won’t fall until maturity. This offers the ability to close the CD and move the funds into a savings account without any penalty if the money is needed before maturity.

No. 4: High-yield checking accounts

High-yield checking accounts generally offer rates much higher than online savings accounts, but there are downsides. First, the high APY often only applies to a small balance cap (such as $3,000 to $15,000). Second, there are typically minimum requirements to earn that high APY, such as a certain number of debit card transactions per month.

Methodology

MagnifyMoney researchers used unemployment rate data from the U.S. Bureau of Labor Statistics (BLS) for various demographics — race, education and age — from January 2020 (pre-pandemic) to August 2020 to estimate the most significant changes.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Do you have a question?