Op-Ed: How COVID-19 will change the low-wage labor market permanently

The rapid deployment of COVID-19 vaccines has reduced coronavirus infections, hospitalizations and deaths in the United States, and restrictions on economic activity are being eased. But even with labor markets gradually improving, the economic recovery has been slow and uneven.

According to the latest official figures, overall U.S. employment is still down by about 10 million jobs from when the recession hit, and by nearly 12 million from the pre-pandemic period. The unemployment rate, adjusted for the sharp drop in labor-force participation, is around 10%, and the rate is even higher for African Americans, Latinos, women and the less educated, reflecting both the dual nature of the pandemic and longer-running labor-market disparities.

Another trend that predates COVID-19 is the transformation of work through automation and digitalization —processes accelerated by how businesses and consumers have responded to the pandemic. This too threatens to deepen preexisting inequalities, because Black and Latino workers are overrepresented in the jobs that are at the greatest risk from automation.

A sustained recovery to an economy with full employment and ample “good jobs” will require a significant reallocation of workers from the low-wage, low-skill positions that have been eliminated to new ones requiring higher skills and more training. A recent study by the McKinsey Global Institute finds that up to 25% more workers than previously estimated may need to switch occupations.

The pandemic has had a particularly severe impact on jobs requiring high levels of physical proximity and face-to-face contact, including waiters, shop clerks, hotel receptionists, stadium workers, stylists and other low-wage positions. Again, women, minorities, and the less educated are overrepresented among these front-line workers.

Many of the physical-distancing practices adopted by consumers and businesses during the pandemic will likely persist. In 2020, e-commerce sales increased more than 32%, growing two to five times faster than their average rate over the previous five years. And now, many consumers say they will continue to shop online even after the pandemic is over.

Likewise, many companies’ survival now depends on their ability to shift to remote work, a practice that had long been resisted. With emerging evidence indicating that remote-working employees are sometimes working longer hours and becoming more productive, many businesses are planning to allow for various types of hybrid remote work after the pandemic.

Remote work, however, is concentrated in higher-wage jobs. According to a survey conducted in the U.S. last April, approximately 60% of high-earning workers could do their jobs effectively from home, compared with 34% of low-earning workers. Not surprisingly, high-wage occupations in the U.S. have suffered much smaller declines in employment than low-wage categories.

A large permanent shift to remote work would have far-reaching implications for urban centers and the workers who provide services in office buildings, restaurants, hotels and shops. Before the pandemic, such services accounted for an estimated 1 in 4 American jobs, as well as a large and rising share of employment among workers without a postsecondary education. Now, recent research confirms that as pandemic-related remote work has increased, the demand for local services in cities has begun to fall.

More telecommuting thus could permanently change the geography of work, spurring a longer-term migration of talent from large, high-cost cities that had historically been the engines of job creation. There is already evidence from residential rents and office vacancy rates in both the U.S. and Europe that some workers and companies are moving from the highest-cost areas to smaller cities.

Businesses are also investing in digital technologies and automation to enable more physical distance between their employees, and to create flexibility to cope with surges in demand. Among other things, robots and artificial intelligence applications have helped workers on assembly lines maintain safe social distancing; expedited e-commerce warehouse operations; allowed for more self-checkout in stores; helped banks process the surge in stimulus loans; and even filled in as cooks, flipping burgers and preparing French fries.

These forms of pandemic-driven automation are likely to displace workers on a much larger scale than economists had previously expected. The largest impact will be in food services, retail, hospitality, customer service and office support, most of which are low-wage jobs.

Recent research finds that there could be 4.3 million fewer food and customer service jobs and nearly 1 million fewer office support jobs in the U.S. in 2030 than would have been the case without the pandemic

Finally, jobs paying in the top 30% of wages — such as those in healthcare and the STEM (science, technology, engineering and math) professions — are set to grow. But these require a very different mix of skills and credentials than the low-wage jobs that are disappearing. Training displaced workers thus will become a major priority.

The potential mismatch between future skill requirements and available jobs presents an opportunity to reimagine work, the workforce and the workplace for employers of all sizes. But it also increases the urgency of funding and creating effective training and income-support programs for workers who are forced to shift occupations.

Building a “good jobs” future is possible. But, as the California Future of Work Commission points out in a new report, getting there will require both public and private investment in workers’ skills.

Laura Tyson, former chair of the President’s Council of Economic Advisers, is a professor of the graduate school at the Haas School of Business and chair of the Blum Center Board of Trustees at UC Berkeley. Susan Lund is an economist at the McKinsey Global Institute.