How Covid Changed the American Workforce

People are rethinking their relationship with work. Older workers are retiring or staying home and may never return. Parents are deciding that the added money from two incomes are not worth the disruption and disconnection. Immigration has been discouraged by fear of both Covid and terrorism. 

The workforce is getting younger, better paid  - and employers are automating whenever they can. JL

William Galston reports in the Wall Street Journal:

There is mounting evidence that the pandemic is triggering changes that wouldn’t have happened otherwise. Older Americans have left the workforce in droves, and many will never return. Parents of young children are re-evaluating the balance between work and family, and some have decided that the quality-of-life benefits of remaining at home exceed the costs of lower household income. Because the U.S. labor force is projected to grow slowly in the next decade, businesses are automating whenever possible. In the interim, businesses can expect to pay higher wages and boost capital investment.

Economic forecasting is a tricky business—at best, an art rather than a science—and even the best observers get it wrong sometimes, as the Federal Reserve Board has this year with inflation. Disjunctive events, such as a pandemic, make predictions even more difficult.

No doubt the pandemic has accelerated changes that were already under way. (The shift toward remote work is a good example.) But there is also mounting evidence that the pandemic is triggering changes that wouldn’t have happened otherwise.

 

Before the emergence of Covid-19, the share of Americans 65 and older in the workforce had been increasing steadily. The virus abruptly reversed this trend. Older Americans have left the workforce in droves, and many will never return.

This is a rational response. Americans 65 and above account for three-quarters of the nearly 800,000 Americans who have died from Covid-19, dying at 14 times the rate of younger Americans. If the U.S. had made it closer to universal vaccination and mask-wearing in public spaces, fewer elderly Americans probably would have left the workforce. But that isn’t what happened.

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Some younger workers have also made the decision to stay home, even if remote work isn’t an option for them. Some worry about catching Covid-19. Others fear passing it on to their children or elderly relatives.

Extended time away from the paid workforce has long-term consequences. Economists focus on skills growing rusty. But there is anecdotal evidence that deeper changes are also under way. Parents of young children are re-evaluating the balance between work and family, and some have decided that the quality-of-life benefits of remaining at home exceed the costs of lower household income.

All of this suggests it will be a long time (if ever) before the labor-force participation rate reaches its 2020 levels. If so, standard calculations about slack in the labor market are misleading. Although there are 2.4 million fewer people in the labor force than there were before the pandemic, we may be much closer to full employment than many economists believed a few months ago.

Employers certainly think so, which is why companies are in a frantic bidding war to fill stubborn vacancies. Wages are rising rapidly, and surveys from organizations such as the Conference Board suggest they’ll rise even faster next year. Workers are beginning to demand guaranteed protection against rising prices, which could make it harder to tamp down inflation.

The pandemic has shifted consumer demand for goods away from brick-and-mortar stores and toward online shopping. Demand for workers to staff giant warehouses is soaring, and the companies that dominate online marketing can pay hourly wages that other businesses cannot afford. Many mom-and-pop stores and restaurants are cutting back or closing.

Higher wages have also affected larger businesses in the service industry. Hotels can’t find enough staff to make their beds and man their front desks, so they are cutting back on amenities. Rooms are cleaned less frequently, restaurants are open less often, and shops offering newspapers and sundries are closed for good.

Because the U.S. labor force is projected to grow slowly in the next decade, businesses are likely to respond by automating whenever possible. In 2021 Tyson Foods spent $70 million on automation. Over the next three years, the company said last week, it expects to invest $1.3 billion on robots to do the frontline jobs, such as deboning chicken, that they can’t find workers to fill. By 2024 Tyson expects a handsome return on investment, measured in expanded production capacity and lower costs.

Parts of the service industry may also automate tasks. Restaurants could equip tables with devices for placing orders, freeing up frontline staff to answer questions and serve food.

But personal services can’t be done by a machine. More than 200,000 nursing-home workers have left their jobs since the beginning of the pandemic, and nursing-home operators haven’t been able to fill all these slots. According to Howard Gleckman, a long-term-care expert, nearly 89% of nursing homes and 82% of assisted-living facilities are reporting moderate to severe staff shortages. Because many of these facilities are required to meet staff-to-patient ratios, some are turning away patients. As the population rapidly ages, this problem will only get worse.

The pandemic has unleashed new forces, and adjusting to them will take time. In the interim, businesses can expect to pay higher wages and boost capital investment—and shareholders can expect to receive a smaller piece of the pie.