Commentary Directory

Long Term Employment Shifts Caused by the Pandemic

Jacob Hess
February 23, 2021

The Bureau of Labor Statistics (BLS) is the top government department reporting on the labor market in the United States. As one might assume, it has been busy over the past year documenting the pandemic's devastating effects on employment. Since the crisis has slowed down, their research has moved from a focus on the short-term displacements of workers to a focus on how the pandemic could lead to larger shifts in long-term employment trends. The latest edition of the BLS's Monthly Labor Review dives deeper into changes to the Bureau of Labor Statistics 2019-29 employment projections.

The BLS looks at two different scenarios to update the employment projections model. The scenarios break down into "moderate impact" and "strong impact." In the words of the BLS:

  • The "strong impact" scenario assumes more widespread, permanent changes to consumer and firm behavior as a way to mitigate viral spread.
  • In the "moderate impact" scenario, increased telework is the primary force of economic change and has both direct and spillover effects. With more employees teleworking, the need for office space will decline, and so will nonresidential construction. Spending for employee trips to offices, including commuting costs, business travel, and lunchtime restaurant spending, are all lower here than in the baseline projections.

The most impacted industries in the short-term have been people-facing jobs in service and retail businesses that are deemed non-essential. BLS sees the pandemic's impact lasting beyond 2021 especially in retail and traveler accommodation. Both are projected to see stronger contractions in employment in the moderate or strong scenarios than original projections. Food services and drinking places are expected to see a larger drop-off with the baseline projection of 7.3% adjusted down to just 1.3% in the moderate scenario and -3.1% in the strong scenario. Employment trends are likely to be exacerbated by automation and e-commerce, in both retail (Amazon) and food service (DoorDash, Uber Eats), which will lead to less human interaction.

The rise of teleworking has been a paradigm shift brought on by the pandemic out of necessity. Businesses shifted from having the capability of incorporating teleworking to being forced to incorporate teleworking. As a result, the need to accommodate large-scale commuting of employees to and from places of work is likely to see limited growth. The air, transit, and ground transportation workforce is expected to see smaller growth in the moderate scenario, and in the strong scenario, is expected to be flat or see slight contraction.

An extension of teleworking and less commuting means less of a need for office space. As a result, the BLS sees a shake-up in the construction industry. Nonresidential construction employment is likely to decline in both scenarios despite an initial projection of a 4% plus growth rate. The effects might spill over into residential construction employment as lost workers cross over into that industry leading it to grow. Housing demand is also likely to increase with more teleworkers opting to move away from cities.

The industries that are expected to grow as a result of disruptions from the pandemic are mostly expected. Many of them are STEM-related and deal directly with the technologies that saw growth during the past year. First, employment in pharmaceutical research and similar medical research areas is projected to grow faster now as the pandemic has placed a new emphasis on public health. The successful techniques used to fast-track the vaccine have also lead to interest in those fields and optimism that they can solve other problems in medicine.

Computer systems and peripheral equipment manufacturing and design industries (growing quickly already) are expected to grow even more to supply the equipment necessary to support teleworking. The updated growth rates are huge up 19.1% for computer manufacturing and up 26.1% for computer design services, regardless of the moderate or strong impact scenarios.

With every crisis comes a paradigm shift and sometimes more than one. The COVID-19 pandemic is no different. The BLS report outlines major shifts that are likely to be "sticky" and how workforces will change because of those shifts. These workforce disruptions are more than just shifts in what kids will "want to be when they grow up" but instead representative of how firms and government will reallocate their capital to growing industries. Those new capital projects are the future of the economy and the market and what society will look like in the future.