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Speaker 1: It was a toll of thirty five years that I

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Speaker 1: was in that I was didn't do this like I said.

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Speaker 1: I started in the Martian and then I begin to

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Speaker 1: do four times and I stayed in the same location

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Speaker 1: until the unfortunate closing March twelve of Hello and welcome

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Speaker 1: to Stephanomics, the podcast that brings the COVID global economy

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Speaker 1: to you. And that was Isaac Thomas, who closed the

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Speaker 1: doors of his taekwondo studio in Atlanta in mid March

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Speaker 1: and will not be reopening him. More than three million

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Speaker 1: small businesses have shut in the US since February. The

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Speaker 1: global tally must run into the tens of millions. In

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Speaker 1: a little while, I'll be asking Bloomberg chief economist Tom

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Speaker 1: Orlick how much of the economic damage we've seen from

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Speaker 1: COVID nineteen is likely to be quick. He reversed, he

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Speaker 1: has some new research suggesting depressingly that nearly one in

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Speaker 1: three of the jobs lost in the US due to

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Speaker 1: the crisis may not be coming back. But first, we're

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Speaker 1: going to hear more about Isaac Thomas, because his experience

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Speaker 1: also speaks to the particularly high price that African Americans

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Speaker 1: have paid for COVID nineteen in Atlanta and across the US,

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Speaker 1: the National Bureau of Economic Research reckons the number of

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Speaker 1: black entrepreneurs in America fell by forty between February and April.

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Speaker 1: That's more than twice the decline in the number of

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Speaker 1: white owned businesses. US Economy reporter in Atlanta, Mike Sasso

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Speaker 1: has dug deeper into this story, and he's with me now. Mike.

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Speaker 1: Listeners will remember we last spoke to you back in April,

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Speaker 1: when the governor of Georgia was reopening the economy well

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Speaker 1: ahead of everyone else. I'd like to hear that's going.

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Speaker 1: But first tell me about the story you wrote with

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Speaker 1: your colleague Sajo Kishan. What did you find out. Well, Yeah,

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Speaker 1: African American businesses have been really hit hard by the

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Speaker 1: the COVID nineteen pandemic, to much greater extent than white

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Speaker 1: and frankly other uh several other ethnic groups. African American

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Speaker 1: owned businesses about forty one percent, or more than four

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Speaker 1: and ten have closed at least temporarily through the pandemic.

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Speaker 1: That's more than double the rate of white owned businesses.

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Speaker 1: About seventeen percent of all white owned businesses have shot

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Speaker 1: at least temporarily during the pandemic. Uh and some even

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Speaker 1: even more so than in other hard hit groups like

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Speaker 1: immigrant in Hispanic owned businesses are each around thirty or

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Speaker 1: thirty five percent, and the numbers involved are enormous. I mean,

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Speaker 1: we're talking about four hundred and forty thousand black small

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Speaker 1: businesses closing between February and April. M We know that

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Speaker 1: a lot of African American owned businesses, that entrepreneurs find

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Speaker 1: it harder. But what are the factors that researches a

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Speaker 1: looking at when they try and think why so many

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Speaker 1: black owned businesses have gone bust? I mean, it is

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Speaker 1: partly about the sectors they're in. I guess, yeah, there's

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Speaker 1: a there's a range of of ideas about this one.

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Speaker 1: They have been hit by this pandemic, partly because you know,

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Speaker 1: African Americans in general have been hit hard by the pandemic.

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Speaker 1: You know, just healthwise. Only about thirty two or thirty

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Speaker 1: five percent of the population of Atlanta is African American,

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Speaker 1: which is higher than the nation at large, but still

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Speaker 1: a minority of of Atlanta's population, and yet eighty percent

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Speaker 1: of the hospitalized patients in the Atlanta area where African

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Speaker 1: American so a huge disproportionate number of them are being

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Speaker 1: hit by health wise. Uh. And then there are longer

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Speaker 1: standing issues with with financing of their businesses. Um, they

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Speaker 1: have had a historically harder time getting loans. Even recently,

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Speaker 1: only about twenty nine or thirty percent of African American

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Speaker 1: in businesses have been able to get a bank loan. UH.

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Speaker 1: That's meanwhile, white owned businesses are closer about two thirds

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Speaker 1: able to tap into bank credit. So that's a major issue.

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Speaker 1: And then there are you know, they do tend to

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Speaker 1: be in industries that are getting hit harder by this. Basically,

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Speaker 1: the best small business to be in in America right

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Speaker 1: now is agriculture. Unfortunately, African Americans are not, you know,

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Speaker 1: significantly in agriculture in any great numbers. They are in

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Speaker 1: in what they call this broad category called personal services.

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Speaker 1: So think of dry cleaners and hair salons and whatnot,

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Speaker 1: and those are among the most hardest hit businesses. So

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Speaker 1: there are a lot of factors, both historic and more recent,

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Speaker 1: contributing to this. Well, I know you looked at a

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Speaker 1: lot of research, but you also talked to quite a

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Speaker 1: few local African American business owners, including Isaac Thomas. Let's

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Speaker 1: there a bit more now, I was still always been

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Speaker 1: fascinated with this martial arts. So I began to to

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Speaker 1: study off and on, and then I got very serious

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Speaker 1: about it in nineteen seventy nine. And when I tell

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Speaker 1: my black daughter, I always wanted to be a teacher.

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Speaker 1: That's how Atlanta Tykwandos started back in nineteen What happened

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Speaker 1: starting take me back to earlier or mid March. On

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Speaker 1: March fourteenth, I said, I told my wife, I said,

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Speaker 1: I know my body something's wrong. So I drove myself

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Speaker 1: to the Veteran's Administrations Hospital and Claremont Road, and that's

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Speaker 1: when they determined that I had a fever. Uh. They

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Speaker 1: took X ray blood work me for the COVID nineteen

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Speaker 1: and I always diagnosed positives. March fourth I got the

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Speaker 1: results on marching teams. So that was I get the

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Speaker 1: beginning of the end. My wife herself, she was in

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Speaker 1: the hospital for eighteen days on a ventrilator for toil

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Speaker 1: and that was a very trying time there. So but

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Speaker 1: the the governor and also the the mayor of Atlanta,

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Speaker 1: the mayor of East Point, they just shut everything down,

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Speaker 1: so that that caused me not to be able to

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Speaker 1: make any income. Whatsoever from from my place of business.

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Speaker 1: So that was again, like I said, that was the

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Speaker 1: beginning of my end. So we had that Isaac was

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Speaker 1: one of those business owners that got sick and that

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Speaker 1: was part of the reason he couldn't keep up the

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Speaker 1: business and his wife did as well. Yeah, Isaac is

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Speaker 1: really compelling case. Uh. He he has started his taekwondo

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Speaker 1: studio in in a predominantly African American area of Atlanta

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Speaker 1: thirty five years ago. However, he admitted it has been

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Speaker 1: a labor of love more so than a big money

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Speaker 1: maker for him. He never was able to get much

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Speaker 1: in terms of bank loans. He described how on occasion

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Speaker 1: banks and other lenders would come to him offering money,

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Speaker 1: but it was at times when he didn't need it,

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Speaker 1: and at those periods when he did need it, Uh,

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Speaker 1: they were not willing to come forward with money. Uh.

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Speaker 1: And then you take that historic trouble getting credit and

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Speaker 1: compounded with his own illness, and it just didn't make

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Speaker 1: any sense any longer to Isaac to keep going. He

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Speaker 1: didn't have the money. Financing was a struggle and there

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Speaker 1: were challenges to business. I mean the social distancing requirements

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Speaker 1: put on by local governments, how you know he was

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Speaker 1: not allowed to have more than ten people in his

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Speaker 1: studio at any time. How do you operate a business

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Speaker 1: a a tae kwondo studio where you need to have

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Speaker 1: a number of you know, certain number of clients. How

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Speaker 1: do you do that when you have to limit it

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Speaker 1: to ten people? And and we did here, I mean

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Speaker 1: partly because of that experience with getting credit when he

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Speaker 1: really needed it in the park, asked he hadn't even

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Speaker 1: tried to get access to the government loan schemes since

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Speaker 1: the pandemic struck because he didn't want to get into

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Speaker 1: more debt. And I guess he wasn't even sure he

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Speaker 1: was going to get it. And that is something else

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Speaker 1: that was brought out in your story that there was

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Speaker 1: quite surveys of black and Hispanic business owners. Most of

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Speaker 1: them were saying they weren't able to get or they

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Speaker 1: hadn't yet been able to get assistance from the government.

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Speaker 1: And you did ask him though, about what he thought

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Speaker 1: about the future. So maybe let's just hear a little

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Speaker 1: bit about that, and then I want to hear from

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Speaker 1: you what you think things are like on the ground

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Speaker 1: in Atlanta. Do you think that they will be able

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Speaker 1: to rebound quickly when maybe this virus gets under control,

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Speaker 1: or do you do you foresee a longer, more difficult

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Speaker 1: come back in most instances is probably going to be

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Speaker 1: longer because uh, we're probably not gonna be able to

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Speaker 1: get the amount of fan anything or the amount of

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Speaker 1: loan they would really need. And it's understandable somewhat because

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Speaker 1: like I say, they couldn't extend to me just a

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Speaker 1: uh large amount of loan when I'm not bringing in

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Speaker 1: that kind of money. So I understand the economics. So

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Speaker 1: that's why I think that was gonna be a little

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Speaker 1: bit behind unless you get hopefully you've got those businesses

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Speaker 1: out there who are making good money and they can

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Speaker 1: get these loans and get themselves back on their feet.

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Speaker 1: And I really applaud them, the ones who are hanging

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Speaker 1: in there to make it through. And what's in your future, well,

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Speaker 1: that's it's it's it's really uncertain right now. I have

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Speaker 1: many of my students want me to uh I use

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Speaker 1: the term like from the mood of Blues Brothers. They

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Speaker 1: want me to get the band back together and then

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Speaker 1: uh and I talked to him, and I may start

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Speaker 1: doing something on a smaller scale, but the the what's

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Speaker 1: important thing right now as my family, like my wife,

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Speaker 1: I may do it on a smaller scale, but probably

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Speaker 1: not to the scale that's before. The last time we spoke,

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Speaker 1: you had braved the waffle house. When the Georgian governor

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Speaker 1: had opened up restaurants bars. I think it was tattoo

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Speaker 1: parlors Neil Salance, way ahead of expert advice. How is

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Speaker 1: that going and things getting back to normal? Have you

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Speaker 1: seen um COVID cases continuing to rise as I know

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Speaker 1: you have in some states in the US. Yeah, you're right.

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Speaker 1: Georgia was the first American state to open in any

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Speaker 1: meaningful way back you know, it was late late April.

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Speaker 1: I will say it's it's fairly you know, seems to

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Speaker 1: feel like getting back to normal here. There's a restaurant

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Speaker 1: booking service Open Table, where you go in you book

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Speaker 1: tables in advance at restaurants, particularly in the South. Bookings

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Speaker 1: are are increasing at a restaurants, particularly in Florida. I

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Speaker 1: was just looking about fifty five percent of uh the

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Speaker 1: Florida restaurants rather have picked up about fifty five percent

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Speaker 1: of their previous business, so they're only down about forty

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Speaker 1: I guess I have to ask you you I wanted

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Speaker 1: to know whether your favorite restaurant had opened yet last time,

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Speaker 1: and it hadn't opened. Have you been able to go

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Speaker 1: to your what was it the Korean restaurant that you

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Speaker 1: talked about? You know, honestly, it's a good question. I

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Speaker 1: haven't been by there. I have a little seven seven

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Speaker 1: year old daughter who loves kind of schlocky chain restaurants.

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Speaker 1: There's uh one called Chilis here in America and Applebee's,

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Speaker 1: and while they're not my favorite, um she she, she

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Speaker 1: loves the chains, and so we're kind of dominated by

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Speaker 1: what my what my seven year old what's in Korean?

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Speaker 1: Tagos are not yet her favorite. I can just imagine

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Speaker 1: sitting in lockdown craving your first meal, and then the

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Speaker 1: first meal is at Chili's. Um. Not that there's anything

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Speaker 1: wrong with that, Thank you very much, Mike Sass. So

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Speaker 1: we touched there on a massive question hanging over not

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Speaker 1: only business owners like Isaac Thomas, but governments around the world,

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Speaker 1: well everyone really, as they try to look to the future.

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Speaker 1: What we all want to know is how many of

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Speaker 1: the jobs and businesses we've lost in the past few

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Speaker 1: months will automatically come back as lockdowns are eased, and

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Speaker 1: how many might be gone for good or at least

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Speaker 1: a long time. Well, our chief economist Tom Warlick, great

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Speaker 1: friend of Stephanomics, just published some work on this with

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Speaker 1: two colleagues beyond Von Roy and Scott Johnson. Tom, welcome back.

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Speaker 1: I know this was quite a sophisticated model, but can

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Speaker 1: you briefly explain the approach you took and what some

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Speaker 1: of the key conclusions were. Great to be back, Stephanie. So,

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Speaker 1: the key question in terms of the unemployment impact of

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Speaker 1: the COVID nineteen recession is how much of this is

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Speaker 1: just a supply and demand shock. Jobs that are gone

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Speaker 1: but which will come back quite quickly once the lockdown

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Speaker 1: ends and stimulus starts hitting the economy, and what share

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Speaker 1: of them represent what economists call a reallocation shock, So

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Speaker 1: a shock that comes because consumers are going to change

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Speaker 1: their behavior. They're not going to go back to restaurants,

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Speaker 1: they're not going to go back to nightclubs, they're not

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Speaker 1: going to go on and fly on airlines, and those

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Speaker 1: jobs which are the result of the reallocation shock. The

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Speaker 1: assumption is, well, they might be gone for good, or

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Speaker 1: at least gone for a protracted period of time. So

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Speaker 1: what we did was we looked at flows in and

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Speaker 1: out of the US labor market, of the US labor

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Speaker 1: market on a sector basis, and what we did was

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Speaker 1: we said, Okay, if a particular sector has a lot

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Speaker 1: of job separations, a lot of people getting kicked out

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Speaker 1: of work, but not a lot of vacancies, that's a

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Speaker 1: supply and demand shock and those jobs could come back

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Speaker 1: pretty quickly once the lockdown ends. But if a sector

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Speaker 1: has a lot of job separations but also a lot

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Speaker 1: of vacancies, then that's evidence that there's a reallocation shock underway,

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Speaker 1: and those jobs are going to take longer to come

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Speaker 1: back because people are going to need training, they're going

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Speaker 1: to need to build connections with new firms, they might

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Speaker 1: need to move around the country before they find employment.

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Speaker 1: So it's a it's a compelling model, but really it's

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Speaker 1: only a model, so we have to take the results

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Speaker 1: with a grain of salt. But what they're suggesting is

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Speaker 1: that actually we're facing a pretty significant reallocation shock. Around

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Speaker 1: thirty of the jobs in the US which have been

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Speaker 1: lost between February and May are the result of reallocation.

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Speaker 1: And what that suggests is we're going to see the

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Speaker 1: beginning of a V shaped recovery in the labor market.

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Speaker 1: A lot of jobs are going to come back quite quickly,

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Speaker 1: but for around thirty of the newly unemployed, UM, there's

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Speaker 1: going to be a long slog back to back to employment.

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Speaker 1: Just just so we have a way of thinking about this.

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Speaker 1: If you were in a in a retail or restaurant industry,

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Speaker 1: for example, if you're getting rid of a lot of

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Speaker 1: waiters because you think it's going to be quite a

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Speaker 1: long time before you can have people back in the restaurants,

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Speaker 1: but you have increased your online business and your delivery

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Speaker 1: business with that, with that kind of shop, is that

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Speaker 1: the kind of reallocation shock are we talking about or

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Speaker 1: we're talking about something more lasting than that, right? So, yeah,

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Speaker 1: an intuitive way of thinking about it would be the

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Speaker 1: Amazon effect. We've got a local grocery store that used

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Speaker 1: to have a bunch of staff dealing face to face

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Speaker 1: with customers who would come in to buy their vegetables

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Speaker 1: and their milk and so on. But because of COVID,

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Speaker 1: people have decided, you know what, I want to minimize

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Speaker 1: my contagion risks. I don't want to go to the

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Speaker 1: grocery store. So I'm going to switch my grocery purchases

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Speaker 1: from the grocery store to Amazon Amazon Prime, and I'm

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Speaker 1: going to get everything delivered. So we see some jobs

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Speaker 1: disappearing in that local grocery store. We see some jobs

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Speaker 1: being created in the Amazon warehouse and the delivery company.

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Speaker 1: That's the reallocation shock. Now that anecdote and the one

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Speaker 1: which you sort of shared about the restaurant switching to online,

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Speaker 1: what that suggests is that the reallocation happens, in a

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Speaker 1: sense in a seamless way. Right, So person A walks

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Speaker 1: out of a job on day one and into another job,

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Speaker 1: maybe with the same company, in day two. The trouble

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Speaker 1: is that reallocation rarely happens in such a smooth way.

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Speaker 1: We see businesses dying, we see other businesses growing and

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Speaker 1: other businesses being created. We see people moving from companies

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Speaker 1: and from between sectors and between locations. But these things

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Speaker 1: take a considerable period of time. Most people don't stop

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Speaker 1: being a waiter on day one and start being a

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Speaker 1: delivery person on day two. That transition takes weeks, months,

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Speaker 1: sometimes even longer. What are the most vulnerable sectors? If

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Speaker 1: we I mean we've already mentioned retail. Is that where

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Speaker 1: the reallocation looks like it's taken place retail, hospitality, or

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Speaker 1: is it broader than that. We actually took two approaches

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Speaker 1: to looking at this question. The first one I just described,

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Speaker 1: that's where we look at flows in and out of

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Speaker 1: the labor market. The second one, and this was the

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Speaker 1: work pursued by Scott Johnson, is where we looked at

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Speaker 1: the dispersion of equity market returns. And the idea there

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Speaker 1: that if you see equity market investors making a big

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Speaker 1: bet on profits in one sector but getting really cautious

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Speaker 1: or pessimistic on profits in another sector, then that's an

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Speaker 1: early signal that there's going to be a reallocation taking place.

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Speaker 1: So we use both approaches to look at the size

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Speaker 1: of the reallocation shock and where the reallocation shock is

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Speaker 1: going to be biggest. And yes, retail shows up big

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Speaker 1: and in both approaches. Hospitality shows up big in both approaches.

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Speaker 1: But there's also sectors like oil and gas, for example,

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Speaker 1: which are not so directly related to the COVID shock.

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Speaker 1: They're not going to be affected by people's preference for

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Speaker 1: face to face contact or not. But because the COVID

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Speaker 1: shock has hammered oil prices. That is also going to

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Speaker 1: lead to a significant reallocation within the oil and gas sector.

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Speaker 1: There's going to be some high cost producers that go

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Speaker 1: out of business, there's going to be some low cost

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Speaker 1: producers that start doing more. And of course, when you're

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Speaker 1: thinking about a sector like that, the reallocation between firms,

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Speaker 1: the cost to workers of losing their job and finding

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Speaker 1: another one starts to look much higher than in that

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Speaker 1: kind of intuitive example about the shift from the waiter

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Speaker 1: to delivery person, where you know, one might hope that

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Speaker 1: that happened more quickly. Tom, you said at the start,

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Speaker 1: we should take the results of this with a pinch

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Speaker 1: of salt. It's just an economic model. I guess some

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Speaker 1: people would say what you're calling a reallocation shock is

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Speaker 1: a behavioral change by consumers that could disappear if we

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Speaker 1: have a vaccine, if we have an end to this

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Speaker 1: crisis sooner than people are expecting. And that's true, right.

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Speaker 1: There is a lot of uncertainty here, absolutely, Stephanie, and

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Speaker 1: I think I flag a few things. So the first is,

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Speaker 1: and this is what you just mentioned, if this all

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Speaker 1: comes back under control really quickly, Um, and it turns

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Speaker 1: out people have short memories and they decide this was

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Speaker 1: a one off and their behavior essentially goes back to normal.

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Speaker 1: Then the reallocation shock could well be significantly smaller than

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Speaker 1: our model suggests. But I'd point to a couple of

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Speaker 1: cautions before before jumping to that optimistic conclusion. So the

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Speaker 1: first one is, actually, if we look at what's happening

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Speaker 1: with the disease case cone around the world, that doesn't

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Speaker 1: seem to be how things are playing out UM. And

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Speaker 1: if we look at how people behave in countries like

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Speaker 1: Sweden and Korea UM, which don't have the same type

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Speaker 1: restrictions in place, what we see is that actually, even

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Speaker 1: when lockdown's ease, fear of contagion continues to be a

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Speaker 1: factor that changes behavior. And the second thing is, Okay,

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Speaker 1: let's say we have an optimistic scenario where this thing's

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Speaker 1: things come under control and the disease stops being an

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Speaker 1: issue in in three months or in six months time. Well,

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Speaker 1: there's a lot of businesses that sadly are just not

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Speaker 1: going to make it that distance. So even if the

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Speaker 1: disease gets taken out of the equation, we're still going

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Speaker 1: to have reallocation because of what economists call the sort

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Speaker 1: of the Matthew effect, to him that hath shall be

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Speaker 1: given to him, that hath not shall be taken away.

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Speaker 1: And we're seeing that playing out really viciously in this

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Speaker 1: COVID shock. Lots of small bricks and mortar business is

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Speaker 1: going under, lots of big e commerce platforms grabbing more

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Speaker 1: market share. And what that suggests to me is that

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Speaker 1: even when the disease comes under control, there's still going

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Speaker 1: to be some significant reallocation that's taken place. Clearly, governments

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Speaker 1: can't hope for the best, even if there is a

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Speaker 1: possibility that some of this will turn out to be overstated.

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Speaker 1: What are the implications if a third of these job

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Speaker 1: losses give or take, are more structural in nature, at

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Speaker 1: least potentially more lasting. What what should governments be doing

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Speaker 1: to try and mitigate that. Are we talking training programs?

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Speaker 1: What do you think would be most effective. That's a

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Speaker 1: great question, um, and it sort of speaks to the

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Speaker 1: difficulty which governments have in framing the right policy response. UM.

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Speaker 1: If you've got essentially a demand shock where the problem

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Speaker 1: for employment is there's not enough spending taking place, then

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Speaker 1: what government should be doing is very very aggressively supporting demand,

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Speaker 1: putting more money into people's pockets, paying businesses to keep

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Speaker 1: hold of their workers through the lockdown. UM. If we're

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Speaker 1: actually looking at a significant reallocation shock, painful though it is, UM,

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Speaker 1: what's needed is for governments to get out of the way, UM,

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Speaker 1: allow a period of higher unemployment, allow some business bankruptcies

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Speaker 1: to take place to speed that reallocation UM. And in

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Speaker 1: that circumstance, massive support for demand would actually create more

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Speaker 1: problems in the longer term. I mean my feeling is

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Speaker 1: the complexity is through sequencing. Right now in the lockdown,

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Speaker 1: clearly the supply and demand shock is dominating, and that's

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Speaker 1: the period for massive government support. Once the lockdown starts

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Speaker 1: to ease, will get a clearer picture of the size

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Speaker 1: of the reallocation shock and where it's particularly important, and

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Speaker 1: that is when governments are going to have to start

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Speaker 1: being a bit more nuanced and differentiating a bit more

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Speaker 1: in terms of where they provide support and where they

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Speaker 1: step out of the way. And that difference is exactly

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Speaker 1: the contrast that Jason Furman drew between Europe and the

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Speaker 1: US last week, and I think we've we're seeing it

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Speaker 1: play out in real time, and we are, as you say,

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Speaker 1: only just beginning to find out which might be more affective.

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Speaker 1: But Tom, thanks very much, thanks for having me on Stephanie.

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Speaker 1: Please don't reallocate me. Thanks for listening to Stephanis. We'll

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Speaker 1: be back next week with more on how COVID nineteen

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Speaker 1: is turning the global economy upside down. Remember you can

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Speaker 1: always find us on the Bloomberg Terminal, website, app or

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Speaker 1: wherever you get your podcasts, and for more news and

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Speaker 1: analysis from Bloomberg Economics, follow at Economics on Twitter. This

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Speaker 1: episode was produced by Magnus Hendrickson, with special thanks to

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Speaker 1: Mike Sasso, Segel Kishan, Tom Orlick, Jorn Van Roy, and

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Speaker 1: Scott Johnson. Lucy Meekin is the acting executive producer of

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Speaker 1: Stephanomics and the head of Bloomberg Podcasts is Francesca Leading