Labor reallocation due to the pandemic is leading to a bleak outlook for U.S. workers, according to a La Salle professor.
It will take years to fully understand the impact of the COVID-19 pandemic on the U.S. job market. One detail of which many labor economists already seem certain, however, is that the economic fallout from the novel coronavirus will result in a staggering amount of permanent job losses.
Recent research indicates that an estimated 42-percent of workers left unemployed by COVID-19 will not return to their previous jobs. Also, the study found that for every 10 coronavirus-induced layoffs, only three new jobs are being created.
Elizabeth Paulin, Ph.D., an associate professor of economics at La Salle University whose research has been published in the Encyclopedia of Political Economy, Industrial Relations and the Eastern Economic Journal, is among the labor economists who envision a profoundly altered U.S. job market—both in the immediate and long-term future due to the pandemic.
“It’s not going to be that once businesses reopen everyone will be able to return to their same job,” said Paulin, who shifted the focus of her course instruction to the economic impact of the coronavirus midway through the Spring 2020 semester. “Until a vaccine is discovered, we will need to continue social distancing. Social distancing reduces the number of people going to restaurants, retail stores, and sporting events, and it reduces the number of people getting on airplanes and going to hotels. There are jobs that are going to be lost as a result and they won’t be coming back for quite a while.”
“And for those who are rehired, as well as for those who were able to retain their jobs, many can expect to be doing things quite differently going forward. Furthermore, I think we’re looking at a major restructuring in the next two years, coinciding with a major reallocation of jobs.”
What “reallocation shock” looks like
Reallocation shock refers to a shift in consumer demand and business practices, which leads to a shift in the kind of jobs that employers are looking to fill. Paulin pointed to industries directly impacted by social distancing measures as drivers of labor reallocation. These jobs include those in the hospitality, entertainment, and travel industries.
New jobs are emerging because of changes in consumer behavior, particularly in delivery, e-commerce, and the grocery industry. But Paulin said the job-loss-to-job-creation ratio will not be equal.
“As some types of employment disappear, different kinds of jobs are being created, but it’s not one-for-one,” Paulin explained. “You go to a home repair store or a supermarket and you see big signs that say, ‘Now Hiring.’ In this reallocation within industries, there’s more deliveries, more takeout, more shopping online for food, which is creating different kinds of jobs and changing the nature of others. Businesses are going to recognize, ‘We don’t need to send people on airplanes around the world to do face-to-face meetings anymore. We can do this electronically and save ourselves a lot of money.’ I think those kinds of patterns will change permanently. How much it changes? That’s a big question, but we’re going to see airlines, hotels, rental cars, taxis, and these kinds of businesses and industries being affected.”
A domino effect
A drastic slowdown in the travel sector would negatively impact the oil and gas industry, launching a domino effect that could play out elsewhere in the labor market.
If businesses make a permanent shift to employees working remotely, as massive companies like Twitter and Facebook are already doing, there’s less need for corporate real estate holdings. If employees are working from home, they are not patronizing businesses near their work. With no work commute, they are no longer as reliant on public transport and automobiles.
“I think retail trade and transportation could be hurt dramatically by mass telecommuting,” Paulin said. “The construction industry may also be hurt as well. If companies are now having their employees work remotely, that means they don’t need to rent space in new buildings.”
Paulin also wonders about low-wage workers across multiple job sectors, who will be left vulnerable as more companies begin shifting to an online business model or a model that favors automation.
“One of my big fears is that we are going to see a speeding up of online buying and selling,” Paulin said. “And I think we’re going to see a more rapid move toward automation in many industries. My concern is what’s going to happen to the low-wage workers employed in these industries? Will automation create a further inequality of income in the U.S.? My big fear is that the answer to that question is yes.”
Impact on future earning potential
The significant job losses predicted by economists cast uncertainty on the future earning potential of workers. Even if you were fortunate enough to remain employed or find employment during the pandemic, the overall lack of jobs could make it more difficult to eventually move on to one with better pay—something Paulin feels could be a driver of stagnated earning potential.
“It certainly could, in that we know most peoples’ wages increase not by the old traditional way of staying with your employer throughout your career and moving up the job ladder,” Paulin said. “The largest wage increases occur for skilled workers as they move from one employer to the next.”
Paulin does see a chance for “a silver lining,” as she said, in the wage dilemma, with the pace of reallocation creating more and potentially better job opportunities in some sectors.
“I think things are going to be changing more quickly,” Paulin said. “And given that things are changing more quickly, there may be room for more opportunity, and better wages. We need to be flexible and position ourselves to take advantage of what will surely be a future that is very different from the past.”