Lower and Middle Earners Face Uneven Economic Recovery

Principal Investigators: Margaret Donnell, Melissa Bearden, Lance Guthrie and Nick Karnovsky

In September of 2021, Capital One launched the Capital One Insights Center, and its first release, Capital One Marketplace Index: The Road to Recovery. Since April 2020, the Capital One Insights Center has conducted studies every four to eight weeks with a nationally representative group of U.S. respondents covering a range of topics from job loss, to how they used government stimulus, to their outlook on economic recovery. 

The study divides these Americans into three income groups to better understand the impacts: lower earners making less than $25,000 in household income annually; middle earners making $25,000-$100,000 (hereinafter referred to as “middle earners”); and higher earners making $100,000 or more. The Marketplace Index is one of the longest-running surveys on the social and economic effects of COVID-19 to date by a private sector enterprise. 

The Center’s December 2021 Pulse Update of the Marketplace Index outlines a snapshot of key trends across several indicators since the release of the inaugural Index published in September 2021, leveraging data points as recent as October 2021.  

December Pulse Report

Nearly two years since the onset of COVID-19, the economy continues to recover from the shock of the pandemic, albeit at uneven rates across income groups. In the latest December Pulse update of the Marketplace Index, key factors related to financial resilience reflect similar overarching trends highlighted in the September release: lower and middle earners (e.g. those making $25,000 or less, and those making between $25,000-$100,000 in household income annually, respectively) continue to grapple with increased levels of financial instability compared to higher earners. This delta is particularly stark as it relates to saving’s rates, self-reported sentiment around financial wellbeing and rent payment and eviction challenges. 

In this December pulse update, the analysis also includes an additional new vignette around reemployment trends and factors leading to voluntary job loss. In this latest release, the most recent analysis identified a significant bright spot amid the background of increased financial pressures: the job market does continue to show signs of recovery. 

Key findings of the December Pulse of the Marketplace Index include:

• Reemployment numbers are increasing since the start of the pandemic, even as consumers report leaving a job of their own volition.
  • Rates of underemployment fell to a new low this October: only 8% of consumers reported feeling underemployed, compared to nearly twice that (15%) a year ago in November 2020.
  • Nationally as of October, 68% of consumers who lost their jobs as a result of COVID-19 have been re-employed, up from 53% a year earlier.
  • Around 16% of consumers left a job of their own volition during the pandemic for reasons that range from burnout (15%), the desire to find a better lifestyle (27%), leaving for a higher paying opportunity (11%)  to concerns about the risk of exposure to COVID-19 in the workplace (16%). 
• Rental payment rates have fallen, while assistance program’s timing lags behind demand as eviction fears loom
  • Rent payment rates continue to fall, with a quarter of consumers who make rent payments saying that they either did not pay rent at all (7%) or paid late (18%) in October, compared to 19% of consumers saying that they paid late (4%) or not at all (15%) in April of this year.
    • Half of renters with payment concerns have applied for Emergency Rental Assistancebut many applicants have either been denied or have to wait 3+ weeks for it (58% of consumers have reported waiting over 3 weeks).
• Savings buffers for lower and middle earners have fallen, while higher earners have bolstered their savings compared to pre-pandemic levels. 
  • For consumers earning less than $25K, 39% report having somewhat to much less savings now compared to before the pandemic. Conversely, for those earning $100K+, nearly half of these consumers (43%) report having more savings than pre-pandemic, three times the rate as those earning less than $25K (15%).
• Lower earners feel significantly less financially healthy now than they did before the pandemic, while sentiment around financial health for higher earners has remained relatively stable at comparatively high levels. 
  • Reports of feeling “financially unhealthy” increased sharply - by 50% - among lower earners between the early months of the pandemic and October 2021, with only 33% of consumers earning less than $25,000 stating that they feel financially healthy.

Rates of reemployment are increasing since the start of the pandemic, even as Americans report leaving a job of their own volition

Amid the backdrop of financial insecurity and the challenge of making rental payments for many Americans, the job market continues to show signs of recovery. In a positive sign, across the country, rates of un- and underemployment continued to decrease in October, falling to a new low of about 8% of consumers feeling underemployed, compared to 15% in November 2020. Nationally, 68% of consumers who lost their jobs as a result of COVID-19 have been re-employed, up from 53% a year earlier.

However, the “great resignation” is not necessarily adding to the economic recovery. Around 16% of consumers left a job of their own volition during the pandemic for reasons that range from burnout (15%), the desire to find a better lifestyle (27%) to concerns about the risk of exposure to COVID-19 in the workplace (16%). Notably, an estimated 4% of employed and underemployed consumers have stopped looking for work of any kind due to COVID-19 health concerns.

With the federal moratorium on evictions ending late summer, rental payments continue to remain difficult for some Americans

The end of the federal government’s moratorium on evictions in August has only added to the financial insecurity many lower earners face. Rental payment rates continue to fall: in October 2021, 18% of consumers who make rent payments report having paid late, and 7% having not paid at all, compared to April 2021 with only 4% of consumers reporting paying late, and 15% having not paid at all. 

Although states such as New York and New Jersey have extended the moratorium, alongside the cities of Los Angeles, Seattle and Austin, 9% of consumers this October said that they are worried about eviction despite state and local government mandates. For consumers with rental payment challenges, 29% did not yet have a solution in mind to make their rent in October, 7% of whom reported that they will wait until they are evicted to determine what they will do. Meanwhile 40% of consumers with rental payment challenges said that they had a solution to make October rent, but the solution would cause some level of financial strain (e.g. borrowing money, working out a deal with their landlord, or cutting back on other expenses).

Roughly half of renters with payment concerns have applied for Emergency Rental Assistance, however many applicants have been denied (13%) or have to wait over three weeks to receive it (58%), adding even more uncertainty to the mix. 

Savings buffers for lower and middle earners fall, while higher earners bolster their savings compared to pre-pandemic levels. 

Savings are a critical tool for achieving financial stability and buffering against income volatility. Without resources to tap into when income drops or expenses rise, many families are left with limited options to make ends meet. Based on the results of Capital One’s first Marketplace Index released in September 2021, the critical importance of savings was especially underscored in the wake of COVID-19. Throughout the pandemic, vulnerable consumers faced increased cash flow challenges due to underemployment and job loss. For example, while income and job losses were widespread across all income groups, the impact was heightened for lower earners.  By August 2021, 40% of lower earners in dual-earning households reported that one earner had lost a job – nearly three times the rate of the higher earners. For these groups, COVID-19 related stimulus funds played a critical buffer, with 46% of lower earners reporting in April 2021 that they would not have had enough money to cover their expenses without direct payments.

When compared to the increased savings for higher earners, consumers making $25,000 or less annually faced persistent challenges related to underemployment, job security, and housing security.This threat is compounded by a lack of savings among lower earners. While middle and higher earners arguably have the potential to use household savings as a cushion in the event of a job loss or eviction, 39% of lower earners reported in October of this year that they now have less saved than they did at the start of the pandemic. Conversely, for those earning $100K+, nearly half of these consumers (43%) report having more savings than pre-pandemic, three times the rate as those earning less than $25K (15%).

For consumers earning less than $25K, 39% report having somewhat to much less savings now compared to before the pandemic. Conversely, for those earning $100K+, nearly half of these consumers (43%) report having more savings than pre-pandemic, three times the rate as those earning less than $25K (15%).

Lower earners feel significantly less financially healthy now than they did before the pandemic, while sentiment around financial health for higher earners has remained relatively stable at comparatively high levels. 

Unsurprisingly, sentiment about financial health has also dropped for lower and middle earners in October 2021 compared to pre-pandemic levels.  Reports of feeling “financially unhealthy” increased sharply (by 50%) among lower earners between the early months of the pandemic and October 2021, with only 33% of consumers earning less than $25,000 stating that they feel financially healthy. Meanwhile, for those earning over $100,000, rates of feeling “financially healthy” remained relatively stable pre- and post-pandemic, hovering roughly around 80%.  

COVID-19 has further amplified the wealth gap, as lower earners have seen their savings reduced, and continue to live under the threat of a job loss and eviction. As a result, lower earning households remain focused on responding to their immediate needs, making it difficult to continue to build and sustain wealth. By contrast, a large share of higher and middle earners are growing their savings and experiencing a greater sense of financial security and well being.   

While reemployment figures are increasingly optimistic, many families are still picking up the pieces from COVID’s economic shock, and with the appearance of new variants like Omicron raising alarm bells, consumer behaviors and outlook will continue to shift and affect the trajectory of the recovery.

About the Capital One Insights Center

The Center combines Capital One research and partnerships to produce insights that advance equity and inclusion. As a nascent platform for data and dialogue, the Center strives to help changemakers create an inclusive society, build thriving communities and develop financial tools that enrich lives. The Center draws on Capital One’s deep market expertise and legacy of revolutionizing the credit system through the application of data, information and technology. 

About Capital One

Capital One Financial Corporation is headquartered in McLean, Virginia. Its subsidiaries, Capital One, N.A. and Capital One Bank (USA), N. A., offer a broad spectrum of financial products and services to consumers, small businesses and commercial clients. We apply the same principles of innovation, collaboration and empowerment in our commitment to our communities across the country that we do in our business. We recognize that helping to build strong and healthy communities – good places to work, good places to do business and good places to raise families – benefits us all and we are proud to support this and other community initiatives.