Coronavirus and Changing Labor Market

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Crises, particularly so severe as the one we are currently facing, have the inevitable habit of redefining the way our economic life works. The way people work, as well as the very labor market itself, will undergo significant changes. 

Let us start with a short historical overview of the impact of large crises on the way that the labor market functions. The first well-studies case was the Black Death, its drastic consequences – the outbreak of bubonic plague killed between a fifth and a third of the entire population of Europe – lead to a significant increase in the price of labor, increases in social mobility, and, in the end, contributed (and is even said to be the most important reason by some scholars) to the breakdown of the feudal social order on the continent.

Similarly, the Spanish flu pandemic led to significant growth in capital-intensive industries, but also, paradoxically, to a drop in the overall quality and skills of the labor force.

The two world wars created a long-lasting crunch in labor supply in the primary belligerent countries, and thus led to the lasting inclusion of women in the labor force, essentially doubling the worker pool.

There is no reason to believe that the current coronavirus-induced crisis will leave the labor market unscathed. Most broadly, we can divide the potential effects – with the necessary clarification, that in such a period of economic uncertainty any and all prediction are only probable – between short-term and long term.

The first ones are relevant to the current conditions of the labor market in the infected countries, the second – to the fundamental rules and principles of how the labor market works.

In the short term, there is little reason to believe that the supply of labor will decrease to the extent that it decreased following previous pandemics.

This, of course, is conditional on the infection rate and lethality of the virus. As for the time being it does not appear that there will be a lot of deaths among people at active age, there is no reason to expect a sharp drop in the supply of labor.

Demand, on the other hand, is a whole different story. The slowdown of European economies will inevitably lead to a decreased demand for workers, particularly in the worst-hit industries (tourism, arts and sports, transport, for instance).

Even though this consequence can, to a certain extent, be dampened by an increase in demand for labor in other fields that thrive in the crisis (online retail being the obvious example), the expectation that there will be surges in unemployment and drops in employment (particularly among people with lower skills and education) is well justified.

A restructuring of employment – a shift from the worst-hit industries to those relatively unharmed, also appears quite likely. All of this, is, of course, conditional on the measures that governments adopt in attempt to shorten the crisis and lower its impact.

A long-term, structural change, is, however, much more important. Its nature is alluded to in the initial reaction aimed at limiting the spread of the virus – the closing of workplace that can feasibly be closed and the continuation of the work remotely from home with the goal to limit social contact as much as possible.

Thousands of meetings turned into emails, cancelled conferences moved online, and many, many workers (particularly in the service industry) facing the prospect of working from home for weeks, if not months.

Until recently, in many companies working from home was considered more as half-work and a kind of a bonus that an employer can chose to give his employees, and was not seen a serious model for structuring work (there are, of course, exceptions, especially in the freelancing world).

Thus, the current crisis is, among other things, a testing time for this model of structuring work. If it becomes necessary that states of emergency continue for longer, and the productivity of the workers laboring at home remains unchanged, this will inevitably lead to a significant increase in trust in remote work. Therefore, many businesses could soon switch to this mode given the savings from office space and overhead expenditures that needed to be paid for in-office workers.

The biggest winners in such a scenario would be the disabled, who previously could not find work, and those, who are for some reason or another forced to stay at home (such as taking care of a sick relative), but are otherwise able to work, as opportunities available to them will broaden significantly.

In the last two decades, we witnessed a mass introduction of information technology in nearly all aspects of daily life. Today, it has turned into an invaluable tool for communication and organization of workers scattered in their homes.

Because of this, it may very well be that the coronavirus crisis further accelerates the introduction of information technology in more and more aspects of work. Therefore, the winners (as much as there can be winners) of this situation would be the makers of hardware and software that meets the needs of workers.

What was said until now relates chiefly to services; in manufacturing, remote work seems almost untenable. In spite of this fact, it is very unlikely that manufacturing will remain the same. Changes towards a greater focus of hygiene and the prevention of the rapid spread of diseases in factories appear likely.

Such a change could come in the form of increased cleanliness requirements and more frequent medical examinations and disinfection, and may even lead to reformation of the manufacturing process so that workers have more personal spaces.

Automation and the introduction of more robots in manufacturing provide the ultimate answers as to how can we limit infections in factories, where hundreds of people work.

The work process of public administration will also remain unchanged. The weeks (and potentially months) of social isolation underline the stark need of moving as many administrative processes as possible online, and the provision of more e-government services.

Most of the infrastructure (as far as Bulgaria is concerned, anyway), barring electronic identification for all citizens, needed for full-fledged provision of public serves is in place, and the unwillingness to go to institutions in person and queue with other people will likely force many to try to conduct their business with the government over the Internet.

This, in turn, means that government employees will have to change their workflow, as a result of increased demand of electronic rather than paper-based services.

All of this, of course, remains in the realm of speculation; only time will show whether we are able to judge exactly how the ongoing crisis will have actually affected the way we conceptualize and organize the workplace and work itself.

Adrian Nikolov