April 21, 2020
Lockdown as burden and opportunity
How will the lockdown affect labour markets? The pandemic has sent people home with or without money from governments. This is tough for many households, and created new poverty traps. What will happen after the lockdown ends? Will the economy bounce back to full capacity? This will depend on how gradual the exit will be, how long business can stay afloat, how nervous consumers will be and how much the government gets involved. What we can say with some confidence is that we will see lasting structural changes. Remote working and digital content are there to stay in some sectors. Retail business is becoming inventive to deliver its products and services to customers, offering people a new experience of shopping. Supply chains in production industries become adapted to shortages. We rehearse in lockdown, and these new skills will change profoundly what is possible in the labour market. Business will reinvent itself on the basis of this.
How hard hit the economy is from this will become clear only after the lockdown ends. By the end of this year some businesses may no longer be alive, and some jobs in tourism or restaurants may never come back. The same may be true for brick-and-mortar retail, one of the biggest sources of employment. Companies will restructure to cope with higher debt and lower demand. A lasting destruction of jobs seems unavoidable according to the FT. This is not only about the direct fallout from the lockdown. Consumers are expected to be hesitant to return to normal and that precaution will prevails. But what about those people who enjoy their time in lockdown? Are they not more likely to come out exuberant and replenished? They could be ready more than ever to embrace work and new travel plans. We read this morning that China's beaches are already packed with tourists. It could go either way.
John Maynard Keynes predicted our societies would become so productive that people would hardly need to work at all. Until now we have seen the opposite trend. Despite wealth accumulation, everyone seems to be working harder. Even leisure has turned into another form of work for many. This lockdown resets the clock. As long as they did not hit their hard budget constraints, people have had time to reflect on their life choices, and experience life at a slower pace. What will the return to the new normal look like for them? We would expect habits to change after two months, and some of them will affect labour-leisure choices.
How deep and lasting this recession will be is hard to predict at this point. But a new pool of skills and experiences creates new opportunities for societies, too. It is not the shortage of money in the system. More than any holiday away from home, this lockdown gave us the opportunity to reflect on what to do with our lives and what society we want to live in.