Patterson School of Business
The COVID-19 pandemic has reduced employment 14 times as much as the one after the financial crisis in the late 2000s and accelerated income inequalities. Since the working-age employment rate was high across the OECD countries in 2019 even as immigration soared and minimum wages rose, and the labor share as a portion of national income was rising across America, the pessimistic assessment on the labor markets after the pandemic had been pervasive for a while. For example, in its June 2020 forecasts, the OECD said the second wave of COVID-19 would raise unemployment up to 12.6% but not be below 10% until July 2021.
However, the labor market has turned out to be resilient and its recovery has been faster than expected. According to the Economist, 1.5m firms in 2020 that are likely to end up employing people were increased, which is up by 16% compared to 2019. Also, its special report in April 2021 argues that COVID-19 will ultimately make things better by speeding up changes that were already underway. Especially, due to the rise of remote work, the shift forces managers to become better communicators and helps employment law change. In addition, the perception of the roles of central banks has changed not only to care about inflation but also to seek to maximize employment. In the face of persistently low inflation, the Federal Reserve announced to switch to “average inflation targeting” last year while taking a risk of temporal overshooting a 2% target to help reduce unemployment because of the COVID-19 pandemic. Also, fiscal and welfare policies have been reshaped to protect households’ incomes during lockdowns.
Even though the arguments may be true that the pessimism about the labor markets is overdone and the pandemic may presage improvements in the world of work, much of the remaining joblessness is concentrated among the poor. According to the Economist, in America over 25% fewer jobs paid less than $27,000 a year in January 2021 than in January 2020, even as higher-wage jobs recovered. And it predicts that demand for the sorts of low-wage jobs such as serving staff or hotel workers might be lower than it was. In addition, Barrero, Bloom, and Davis (2020) argue that the pandemic-induced shifts in business practices, working arrangements, and consumer spending patterns will persist in the near future and the rate of employment reallocation rate may be higher than the pre-pandemic level. As the Economist argues, therefore, making labor markets work better will require governments, employers, and workers to think more creatively, and massive investment in training, monitoring, and enforcement of the rules for those out of work would be necessary.