An Economic Revolution Will Change America (Thanks to Coronavirus?)
February 22, 2021 Topic: Economics Region: Americas Tags: JobsU.S. EconomyRemote WorkCoronavirusCOVID-19

An Economic Revolution Will Change America (Thanks to Coronavirus?)

From remote work to automation, the country is facing a vast economic revolution that could change just about everything.

The coronavirus has surely altered the way Americans work, and things will not go back to the way they were. The changes will stick less because of the power of the pandemic than because the lockdowns and quarantines have telescoped trends and pressures that were building long before most people in the country knew about the city of Wuhan. Wide-ranging adjustments were and are in train and will demand a different mix of skills than the labor force had in 2019. Coping will require a major effort at training and retraining. The prospect would be daunting had not the nation done the same many times before.

The starting point of this revolution lies in the sudden jump in working from home. At last count, the Labor Department recorded that some 46 percent of Americans now work remotely, a vast difference from the miniscule proportion of the working population that did so only a year ago. Though businesses have long discussed plans for work from home, since the internet became a commonplace in fact, the projects never got off the ground. Old habits die hard. But the coronavirus forced people’s hands. Doubtless, the economy’s re-opening will bring some of these at home workers back to their shops and offices, but now that remote arrangements have established themselves, many will continue current arrangements. A recent Gallop poll found that fully one-third of those presently working from home would prefer to continue doing so. And it is also clear they will face little resistance from their employers. PWC polled of managements and found that a mere 20 percent of executives planned to re-establish pre-pandemic arrangements. Some 80 percent of executives claim that remote work has improved productivity. Accordingly, some 70 percent of managers are investing in tools to better facilitate work from home, while some 13 percent of them are looking into ways to abandon centralized office arrangements altogether.

The trend’s effects will filter through the economy. Urban restaurants and retail outlets of all sorts counted for a big portion of their business on the millions who gathered at centralized workplaces. Some of these people, and the shops and restaurants that served them, will return with the economy’s re-opening, but not as many as before. Meanwhile, reduced traffic will reduce the staffing needs of those shops and restaurants that do re-open. Because the pandemic has also curtailed business travel and managements are rethinking old patters, hotels will face a similar challenge and adjust staffing accordingly. Bricks-and-mortar retailing, even outside urban areas, will face an additional challenge from online ordering and delivery, which was always a threat and that the pandemic has made it a commonplace.

The adjustment will affect millions. Retail, restaurants, and the hospitality industry generally have long been important employers. Over thirty-two million people earned their living in these sectors before the pandemic arrived last January, slightly over one fifth of the nation’s entire workforce. These sectors suffered tremendous losses as a result of pandemic-related strictures, laying off some ten million between February and April, about half the nation’s entire job losses during that time. The partial re-opening so far has brought some six million of these people back to work. That is still four million short of pre-pandemic levels. A more complete re-opening will bring more back, especially since many Americans are eager to take holidays that they had postponed during the medical emergency. But work from home and reduced levels of business travel will hold back a complete recovery in staffing and certainly flatten the growth trajectory that had prevailed until January 2020.

Equally significant, the pandemic will accelerate the application of robotics and artificial intelligence (AI). American mining and manufacturing have long since stepped up to the cutting edge of robotics. The trend has already brought much manufacturing back from abroad. In the financial sector, AI has enabled many firms to bring back facilities that they had once located in India and elsewhere where labor was reasonably well educated and relatively cheap. But these returning operations never promised jobs. On the contrary, the new technologies, by allowing more output from fewer workers, have created a surge in productivity. The pandemic has encouraged other areas of the economy, those that could not seek economies overseas, to use technology to eliminate staffing needs as well. Potentials are innumerable. A couple of examples should suffice to give a feeling for the change.

The surge in online ordering and delivery has been a boon to firms in that area and so far has greatly increased their hiring. Amazon is a standout, but many other retailers, including huge chains such as Target and Walmart, have embraced this approach. This drive has also encouraged a considerable jump in the application of robotics. The pet food distributor, Chewy, has for instance just constructed a new distribution center that can handle the flow of older centers with only a third of the staffing needs. Chewy and all these other operations surely will in time retool all their facilities to achieve these efficiencies. In another example, restaurants, even before the pandemic, were beginning to introduce their customers to computerized ordering from counters and tables. Those that come back from the pandemic now have an excellent opportunity to do the same on a grander scale, with commensurate reductions in staffing needs. The list could go on indefinitely. No statistics exist because many of the changes are as yet prospective, but the likelihood is undeniable.

All these changes—already in place and prospective, from both altered business practice and from the application of AI—have renewed concerns about widespread unemployment and a large class of unemployable people. Even before the coronavirus accelerated these trends, such concerns had evoked a considerable response from politicians and business leaders, most especially in the tech space. Many have proposed a government administered stipend to sustain this unemployable class and also perhaps to buy social peace. Such a universal basic income (UBI), as it is called, has enjoyed periods of popularity and will likely do so again as the economy re-opens and it becomes apparent that the old ways and many old jobs are not coming back. But if these concerns are easily understood, they nonetheless fly in the face of history and so also in the economy’s likely response to these challenges.

The message of the past is clear. Such concerns have arisen with each technological revolution and major change in business practice, but reality never validated the worries. When the invention or machinery to spin and weave yarn into fabric were introduced into eighteenth century Britain, thousands of weavers and allied workers rightly felt threatened. They formed into bands called luddites to break up the machinery. They failed to stop the trend. No doubt the adjustment brough hardship to hand spinners and hand weavers, but ultimately the machinery made Britain’s textile industry so much more efficient and competitive that it employed many times the number it did before the technology arrived, in different sorts of jobs, to be sure, but employed and at a higher standard of living. The same pattern repeats with each technological and business revolution—railroads, telegraph, telephone, automobiles, air travel, computers, and so forth. Each wave invites the kinds of concerns that have arisen recently and doubtless will intensify as it becomes apparent that pre-pandemic jobs and ways are not returning, but they have all been misplaced, as will these.

The country went through this in the 1960s in early days of robotics. In response to what then was called automation, a group of Nobel Laureate economists put out a report that worried over how the trend would “sever the link between incomes and jobs.” Then President John Kennedy fretted over what he termed the “dark menace of industrial dislocation, increasing unemployment, and deepening poverty. His successor, Lyndon Johnson, proposed “family relief” to combat the inevitable unemployment, poverty, and hopelessness. Yet today’s alarmists look back on that period as a kind of golden age of good paying manufacturing jobs. Similar fears arose in the 1980s when personal computers were introduced. Millions of clerks and typists did lose their jobs, but the PC itself and later the internet created opportunities in areas that had not previously existed and that depended to a large extent on the technology that had displaced others. Cable TV and next day delivery services like Federal Express were early examples. More recently there are Amazon, Uber, and like services, all of which employ millions in jobs previously unimagined.

The most compelling evidence of this pattern lies in long-term statistics on employment. For more than two centuries, through countless waves of technology and changing business practice, this country and most of the rest of the developed world have managed to employ on average some 95 percent of those people who want to work. Had these changes destroyed jobs on balance, that figure would have fallen over time.

The answer, then as now, is neither despair nor plans to support large parts of the population in idleness but rather in training and retraining the workforce so that it can quickly take advantage of the new work opportunities as they arise. That need already existed before the pandemic. Then Labor Department noted what it called a “skills gap” in the country’s workforce that left some 6.5 million jobs unfilled because employers could not find workers with the training to fill them. This situation will only become more acute as the changes accelerated in the pandemic become more evident in the economy’s re-opening.