What Next? (Two Questions)
Desire for economic forecasts surges right when our ability to accurately forecast plunges.
That’s the case today. The decline is unprecedented, so there’s no good historic guide to what might happen next. It’s also huge, so the need for businesses, states, counties, and countries to plan for what might happen next is off the charts.
If good forecasting is out, the best we can probably do today is figure out the right questions to ask about the economy, and pay attention to those questions as reality plays out.
Here are two big questions – one economic, one more social – that seem crucial to pay attention to as we think about recovery.
1. Will the relationships between employers and laid-off employees break, making it difficult to quickly restart a business after the shutdown is lifted?
Half of all homebuilders went out of business between 2007 and 2012. Most of the survivors endured by laying off workers. The number of construction workers in America fell by 2.3 million between 2006 and 2010. The industry employed fewer workers that year than it did in 1989.
Those millions of laid-off construction workers – carpenters, plumbers, painters, etc. – couldn’t just wait for the rebound. They had to go do something else. Some were immigrants who returned to their home country. Others moved states. Many changed careers entirely.
Then demand for new homes returned around 2012. It began to surge around 2015.
But since the bonds between homebuilders and their workers had been broken, homebuilders found themselves unable to just rehire their old work crews and resume business.
Here’s how one report described it in 2018:
Despite a dramatic increase in permits for residential construction since 2009, construction jobs have increased at less than one tenth the pace of permits. As a result, wages and the overall cost of building are increasing, forcing some developers to delay projects or, in some cases, not build at all. “There’s been several projects we declined to bid or just don’t even look at because we know we can’t man them,” said Walt Oxley, owner of Ciarra Construction.
Eight years after the housing bust drove an estimated 30 percent of construction workers into new fields, homebuilders across the country are struggling to find workers at all levels of experience, according to the National Association of Homebuilders. The association estimates that there are approximately 200,000 unfilled construction jobs in the U.S. - a jump of 81 percent in the last two years.
As more than 17 million Americans file for unemployment, one question I have is whether we’ll see a similar thing play out. And this time it might be worse – rather than just the construction industry it could hit perhaps half of all industries.
The CEO of a small business told me last week: “Anyone who thinks you can flip a switch and restart a business after it’s been shut down for two months has never operated a business.”
Part of the reason, he said, is the faulty assumption that staff will immediately return to the same business that laid them off as soon as that business is ready to rehire them.
Will laid-off restaurant workers say, “Hmm, Amazon is hiring 100,000 workers and they seem more stable than my previous job?”
Will being furloughed give an employee who was already a little unhappy in the job before Covid-19 the incentive to find a new company to work for?
Will we suddenly learn how delicate the bond between workers and employers is, and how much damage has been caused to that bond in the last two months?
For me it’s still a question more than a forecast. Several things about today’s labor market don’t fit the construction workers example.
One is that there’s some light at the end of the tunnel, with an assumption that business will begin to resume by May or June. Maybe that makes it more likely that laid off workers will wait out the storm rather than looking for a new career. New unemployment benefits that give anyone who made $15 an hour or less an effective raise may help their patience.
Another is that the unemployment rate will be near a record high when businesses resume operations. The line of people eager to work will be in the tens of millions.
Companies that want workers should have no issue finding them.
The question is whether the kind of workers they want – who possess the right skills, and specific experience a company needs – will be the ones applying.
It’s going to be a problem. The question is how much.
It’s a big question that will determine how quickly we recover, and I’m not sure anyone can answer it with confidence. We’ll just have to see.
2. Will the contrast between those who can work from home and those who lost their jobs increase the gap between haves and have-nots in a way that exacerbates what was already a big social issue?
Income inequality is one of the most important topics of our time.
That’s not always a popular statement. It can sound political and anti-business, so many people tend to avoid discussing it.
But it doesn’t matter whether you think rising inequality is right or wrong, good or bad, or what we should do about it. Someone else can tackle those topics.
All that matters is that it’s happened, and it’s shaped the views and expectations of hundreds of millions of people more than perhaps any other force in the last generation.
Last October I wrote:
[Historically], power is transitory. It shifts when those who don’t have it get so fed up that they bond together to gain enough influence to take it back. Never underestimate the power of a unified group of powerless people with a shared goal …
What happens when the bottom starts pushing back against the top?
Part of it is already happening. Trump, Bernie Sanders, and Brexit all represent people saying, “Stop the ride, we’re going to try something new. If you don’t like it, too bad. This is the way things work.”
What no one knew then was that we were about to dump kerosene on the income inequality fire.
Covid-19 has separated workers into two clearly defined buckets: Those who can work from home and those who can’t.
You can break it out further into those who work for companies that can do business online and those that can’t.
In human terms, there are now flight attendants and waiters whose careers vanished overnight, and lawyers/bankers/consultants/programers who continue earning their nice salaries and benefits while in their pajamas.
That’s generalizing. There are exceptions on both sides. But it’s directionally accurate. And it’s a big deal because a key income inequality characteristic over the last three decades has been the disparity between those who work with their hands and those who work with their heads. That trend just sped up exponentially.
I’m optimistic that Covid-19 will end up being the most socially cohesive thing we’ve experienced since World War II, because it’s a rare common enemy that threatens everyone indiscriminately. But there will be sub-parts of the ordeal that split people further apart. The gap between jobs that can be done remotely vs. those that require a physical presence will be a big one, especially if the disease comes in waves that require several rounds of lockdowns that require several bouts of industry-specific layoffs.
How accurate that is, and to what degree it happens, seems like a big question to me because it will guide the debate over what we do once this ordeal is over.
If everyone agrees how economically destructive this was, the debate will be easy: Laws will be passed installing new unemployment benefits, worker protection regulations, bailout clauses, etc. But if we have 40% of the population whose jobs were completely devastated by the crisis while another 60% didn’t feel much pinch – they may have actually enjoyed having no commute – the debate will be much harder. It could turn into the class warfare that’s underlined most economic debates for the last three decades, but with more passion than ever.
We’ll have to wait to see.