Economics Aug 11, 2021
COVID Has Accelerated These 4 Labor Market Trends
From greater flexibility to higher wages, the workplace is never going to look the same.
Despite hopes for a strong economic recovery in 2021, the U.S. labor market is still clawing back its pandemic job losses.
to your inbox.
With COVID case numbers rocketing back up, it may be awhile before the U.S. labor market picture comes clearly into view, says Benjamin Friedrich, an assistant professor of strategy at the Kellogg School who researches labor and personnel economics.
But while the short-term economic picture is highly uncertain, and dependent on the pandemic’s trajectory, it is clear that several long-term changes to the labor market are already in motion.
“Instead of asking when the job market will fully recover,” he says, “we need to think about how the pandemic triggered or accelerated trends in the labor market.”
Friedrich points to four labor-market trends to watch.
Workplace Flexibility Is Here to Stay
Without a doubt, the pandemic’s greatest impact on employment has been the rapid and widespread adoption of remote work. In Friedrich’s view, workers gaining more flexibility in how, where, and when they work is a shift that’s here to stay.
Prior to COVID, few companies were experimenting with workplace flexibility. One of the main reasons was that firms struggled to calculate what it would cost them, in terms of communication and efficiency, to have employees working across locations. While some companies had success with dispersed international teams, Friedrich says that overall, most lacked data on how to make it work.
“I don’t think this kind of persistent change would have happened without the pandemic,” he says. “Beforehand, there was little need, and it seemed like a costly thing to do. This was the disruption needed to spur experimentation and investment in home offices, as well as widespread adoption of technological improvements in communication and virtual teamwork.”
The open question for companies now is how much flexibility to retain as workers return to the office.
“Companies will have to better describe what type of work and what kind of flexibility model is most valuable and least costly to production,” he says. “We are already seeing dispersion in companies’ willingness to offer remote and hybrid work, which will be an important job characteristic in attracting and retaining talent.”
At the same time, hybrid work could raise new challenges for companies’ DEI efforts. If, for example, women are more likely to work from home, the situation gets complicated should remote work hurt their chances of career advancement.
At least now companies will have better data to start to tackle some of these challenges.
“People Analytics” Will Increasingly Help Companies Manage Talent
Speaking of data.
The last year has accelerated the role that data analytics plays in how companies make decisions regarding their workforces—from talent acquisition and training to team safety and well-being.
“The pandemic has led to a rapid increase in the availability of data, including Zoom communications, online tests for recruiting, and remote monitoring technology,” Friedrich says. “There’s growing demand by firms to put this information to use in improving operations.”
For example, many companies are using survey tools to stay informed about employee engagement and to get feedback that can help them design hybrid workplaces.
“For example, people analytics can help leaders understand communication networks within the company, including which team members would benefit most from personal versus virtual interactions,” Friedrich says.
They are also looking to data to help with recruiting, promotions, and DEI goals. People analytics can help identify underlying biases in pay and promotions, task assignments, mentoring opportunities, and other areas where inequities can surface.
“We are seeing wage pressure building among big competitors. It’s hard to motivate people at a minimum wage, so just distinguishing yourself from other competitors can be a useful strategy.”
— Benjamin Friedrich
“Data collected by new remote monitoring technology may also help to assess performance and could be used for incentive pay for some jobs,” Friedrich says. “Overall, I think this usage of data for talent management is here to stay and has huge growth potential.”
The Job Shift Is Real
Over the last 18 months, both market turmoil and deep uncertainty have led employers in many industries to shed millions of jobs. While Friedrich is confident that employment will continue to tick up over time, it is not yet clear which jobs will come back and which are gone for good.
Research shows that in many cases, automation creates “tasks shifts” rather than job losses. For example, as companies reduced business travel, virtual-meeting technology improved, leaving professionals with more time to spend on other aspects of their jobs such as research and analysis.
“Some of the job shift will require occupational change,” Friedrich says. So while some of the hospitality jobs might never come back, more programmers, technicians, and engineers will be required to design and maintain that virtual meeting technology.
Similarly, the shift towards e-commerce “means lower labor demand in retail stores and supermarkets, and increased demand for warehouses and transportation workers.”
Thankfully, the U.S. labor market is relatively dynamic, with a highly mobile workforce able to adapt to new positions. The flipside of this dynamism, however, is a trend that has already begun to play out—companies having trouble retaining workers.
“Some survey evidence is pointing to a high willingness among American workers to change jobs,” Friedrich says.
Although people are typically hesitant to leave their jobs in a crisis, long periods of remote work coupled with caregiving and schooling have left many workers burned out and ready to hit reset—at a new organization, or in a new industry.
Workers Will Command Higher Wages
After years of wage stagnation, the pandemic accelerated increases to hourly wages in lower-paying jobs, especially in the retail and service industries. For example, some of the largest online and big box chains like Amazon, Best Buy, Costco, and Target all raised their minimum wages to $15 or $16 per hour, more than double the federal minimum wage.
Friedrich believes that two forces have triggered the rise of retail’s minimum wage: strong pandemic profits and anticipation of impending regulatory changes.
With retail chains needing to staff up as the economy opens and customer demand grows, those that can pay more are doing so in order to be more attractive to workers.
“We are seeing wage pressure building among big competitors,” Friedrich says. “It’s hard to motivate people at a minimum wage, so just distinguishing yourself from other competitors can be a useful strategy.”
As national support for the lowest earners gains momentum, “companies are getting ahead of the curve,” says Friedrich.
They are even calling out competitors, such as Walmart, for paying as low as $11 in some places, despite having an average minimum wage of $15 per hour. This pressure to standardize wages could help to lift them across the U.S.
And what of the delta variant, currently upending companies’ best laid return-to-work plans? How might that affect wages in the short term? It depends.
“This will lead to a slower recovery of labor supply, especially in areas with lower vaccination rates, where more people may also get sick and miss work time,” Friedrich says. “This may not necessarily lead to further increases in wages, though, because consumer demand—and hence labor demand—may also fall in areas with larger delta outbreaks.”
Susan Margolin is a writer based in Boston.
Your Team Doesn’t Need You to Be the HeroToo many leaders instinctively try to fix a crisis themselves. A U.S. Army colonel explains how to curb this tendency in yourself and allow your teams to flourish.
What Triggers a Career Hot Streak?New research reveals a recipe for success.
What’s the Secret to Successful Innovation?Hint: it’s not the product itself.
Which Form of Government Is Best?Democracies may not outlast dictatorships, but they adapt better.
How Much Do Campaign Ads Matter?Tone is key, according to new research, which found that a change in TV ad strategy could have altered the results of the 2000 presidential election.
What Went Wrong with FTX—and What’s Next for Crypto?One key issue will be introducing regulation without strangling innovation, a fintech expert explains.
How Are Black–White Biracial People Perceived in Terms of Race?Understanding the answer—and why black and white Americans may percieve biracial people differently—is increasingly important in a multiracial society.
Immigrants to the U.S. Create More Jobs than They TakeA new study finds that immigrants are far more likely to found companies—both large and small—than native-born Americans.
How Experts Make Complex DecisionsBy studying 200 million chess moves, researchers shed light on what gives players an advantage—and what trips them up.
Yes, Consumers Care if Your Product Is EthicalNew research shows that morality matters—but it’s in the eye of the beholder.
Why Well-Meaning NGOs Sometimes Do More Harm than GoodStudies of aid groups in Ghana and Uganda show why it’s so important to coordinate with local governments and institutions.
Product Q&A Forums Hold a Lot of Promise. Here’s How to Make Them Work.The key to these online communities, where users can ask and answer questions, is how many questions get useful answers.
What Went Wrong at AIG?Unpacking the insurance giant's collapse during the 2008 financial crisis.
When Do Open Borders Make Economic Sense?A new study provides a window into the logic behind various immigration policies.
What the New Climate Bill Means for the U.S.—and the WorldThe Inflation Reduction Act won’t reverse inflation or halt climate change, but it's still a big deal.
Post-War Reconstruction Is a Good InvestmentUkraine’s European neighbors will need to make a major financial commitment to help rebuild its economy after the war. Fortunately, as the legacy of the post–World War II Marshall Plan shows, investing in Ukraine's future will also serve Europe's own long-term interests.
How Has Marketing Changed over the Past Half-Century?Phil Kotler’s groundbreaking textbook came out 55 years ago. Sixteen editions later, he and coauthor Alexander Chernev discuss how big data, social media, and purpose-driven branding are moving the field forward.
The Political Divide in America Goes Beyond Polarization and TribalismThese days, political identity functions a lot like religious identity.