Since March, tens of millions of workers in America have lost their jobs or are working fewer hours due to the spread of COVID-19. Even as the economy reopens, major industries—from leisure and hospitality to retail—will likely experience a slow recovery and thus significantly lower levels of employment relative to pre-crisis levels. For those who are not able to return to their prior job, the urgent question is what jobs will be available, and how best to help people transition to these opportunities. Policymakers will need to confront what resources and reforms are needed to help education and training systems meet the challenge, while employers will play a critical role in communicating where opportunities exist and what skills are necessary for these jobs.
For the rest of the year, the Aspen Institute Future of Work Initiative, with support from the Cognizant US Foundation, will examine the changing US labor market and explore these questions with a focus on specific areas of opportunity and efforts that are ongoing or needed to match transitioning workers with new jobs.
The United States is experiencing a historic health and economic crisis. As most Americans shelter in place, the economic toll is coming into clearer focus. Last week, another 3.2 million Americans filed for unemployment benefits, bringing total jobless claims over the past seven weeks to over 33 million, as the official US unemployment rate rose to 14.7 percent in April. A potential silver lining is that many of the newly unemployed may be able to return to their prior job. Nearly 90 percent of workers who lost their job in April said they were on temporary layoff.
But as the economic crisis deepens, and more is learned about the potential duration of COVID-19, close attention should be paid to workers whose jobs will be permanently eliminated. A new report by the Becker Institute at the University of Chicago estimated that 42 percent of recent layoffs will become permanent job losses. Maryland Comptroller Peter Franchot predicted that 30 to 35 percent of the state’s small businesses will never reopen. In the restaurant industry alone, there are estimates that 75 percent of independent restaurants that have closed won’t reopen, and the entire industry will lose five to seven million jobs. The economic evidence suggests that these displaced workers will suffer long-lasting economic damage and will require additional assistance.
Will Permanent Job Losses Accelerate?
No one knows when the pandemic will subside and a number of the plans to restart our economy suggest that the process will be slow and painful. A long public health crisis and slow re-emergence could permanently change consumer habits, further impacting industries and workers. For years, American consumers have been shifting to online purchases, with e-commerce sales steadily growing from 4.2 percent of retail sales at the beginning of 2010 to 11.4 percent at the end of 2019. But the current crisis appears to have accelerated that trend: a recent Adobe Analytics report found that e-commerce has grown by 25 percent compared to a year ago, while grocery delivery has doubled. As more Americans become online shoppers in the current crisis, some may permanently shift away from retail stores, further reducing the number of workers that brick-and-mortar retailers will rehire.
New social distancing norms and government guidance may also encourage employers to invest in automation rather than rehire workers. Recent surveys of corporate executives from Ernst & Young and PricewaterhouseCoopers found that roughly 40 percent of companies are accelerating their investments in automation in response to the COVID-19 pandemic. Warehouse and factory workers including those in the meatpacking industry, which has struggled to continue operations amid the pandemic are likely to face heightened vulnerability to automation.
Employers have historically automated work during recessions, forcing impacted workers to find new jobs when opportunities are especially sparse. Occupations characterized by routine, easily automated tasks have experienced significant job losses since the mid-1980s. 88 percent of those job losses occurred during recessions. In contrast, jobs characterized by nonroutine tasks only declined slightly and quickly recovered.
Similarly, the Brookings Institution notes in a recent analysis that “routine” occupations like production, food service, and transportation are the most likely to be automated, jeopardizing the jobs of many of the essential workers who are working through this crisis and putting their health at risk. Furthermore, workers in these occupations are disproportionately low-wage, young, and workers of color.
The Impact of Permanent Job Loss
The prospect of permanent job loss, or what is referred to as displacement, can cause significant economic and social challenges for workers, especially during recessions. One study found that displaced workers who lose full-time jobs experience, on average, a 35 percent loss of earnings over the next few years, largely due to unemployment or working fewer hours. These earnings losses can persist for decades. In a 2009 paper looking at mass layoff events from 1980 to 1986, economists Von Wachter, Song, and Manchester found that people who had worked at least three years before becoming displaced had immediate losses of 30 percent in annual earnings compared to those who were not displaced. Earnings remained 15 to 20 percent lower 20 years later. There is also evidence that the effects of displacement have become more severe since the mid-1990s, with recent displacements causing greater earnings losses than past displacements. Displaced workers also face increased job and earnings instability, with recurring spells of unemployment and more occupation and industry switches.
Displacements also contribute to significant non-monetary challenges as displaced workers face higher mortality rates and reduced life expectancy. Parental job loss and displacement have been linked to reduced educational achievement and cognitive development in children. Further, layoffs have been associated with lower rates of homeownership, increased incidence of divorce, and higher rates of entering disability insurance programs.
Responding to the Challenge
As policymakers respond to the COVID-19 crisis, they must also address the challenges posed by job displacements. An ambitious approach should include:
- preventing additional layoffs;
- providing longer-term income support for displaced workers;
- increasing reemployment services; and
- investing in high-quality education and training.
It should be noted that it is unclear to what extent workers displaced by the COVID-19 crisis will have the same profile as workers displaced in the past. The academic literature on displacements focuses primarily on full-time workers who were in stable jobs. To date, the workers most affected by COVID-19 are those in unstable and low-wage jobs, like restaurant workers and other types of person-to-person service sector jobs, though this may change as the crisis progresses. Attention should also be paid to older workers who have traditionally struggled finding new work after losing a job. Many of the policy ideas discussed below—which echo the recommendations in the Future of Work Initiative’s 2019 report Automation and a Changing Economy—are helpful to workers generally, but workers who were already financially insecure prior to being displaced from their work will have a heightened need for income support, while older workers may particularly benefit from wage insurance.
Preventing additional layoffs
While over 33 million unemployment claims have been filed since mid-March, millions more may occur. Company surveys suggest that businesses are planning additional layoffs. PricewaterhouseCoopers’ survey of US chief financial officers found that 70 percent of CFOs are considering deferring or canceling planned investments, and 32 percent anticipate layoffs at their companies. In addition, state and local governments may be forced to reduce their own workforces as revenues plummet and the need for and cost of safety net programs rises.
Preventing layoffs spares workers from loss of income and benefits like health care and sick leave, as well as the potential of dropping out of the workforce altogether. It also helps businesses resume operations more quickly as they can forgo investing time and resources in hiring new workers. And finally, it reduces the risk that we will experience a long-term recession.
To reduce the number of layoffs, Congress recently created the Paycheck Protection Program (PPP) and provided funds for emergency lending through the US Department of the Treasury’s Exchange Stabilization Fund. In addition to the recently provided additional support for the PPP, policies that would provide direct wage subsidies for employers that keep workers on their payrolls should be considered in the next federal stimulus bill.
At the state level, work-sharing programs can be used to further reduce layoffs by encouraging employers to spread the reduction of hours across multiple workers. Through work-sharing, workers can collect Unemployment Insurance (UI) benefits for the work hours they lost. Yet despite the promise of these programs, they are significantly underutilized in the United States. Nearly half of states lack work-sharing programs, and even among the states with long-standing programs, only 0.2 percent of workers benefited from work-sharing in the last recession, compared to 16.9 percent in Italy, 11.3 percent in Belgium, and 4.1 percent in Germany. The CARES Act encourages greater adoption and use of work-sharing programs by reimbursing states for the costs of their existing work-sharing programs and providing funding to encourage states without an active program to create one, but this provision is temporary.
Providing longer-term income support
The loss of jobs or income will hopefully be temporary for unemployed or furloughed workers as they return to their previous jobs, and the various steps taken by the federal government will ameliorate the short-term losses. However, as noted above, the permanent loss of a job, and the resulting impact, is particularly severe for displaced workers.
The CARES Act takes a number of positive first steps to expand UI by boosting benefits by $600 per week, extending the maximum time that a recipient can collect UI benefits by 13 weeks, and expanding coverage to gig, self-employed, and other workers who would otherwise be ineligible. Unfortunately, the regulatory guidance from the US Department of Labor has been narrow and has made it harder for these populations to receive these benefits. Moreover, these provisions are temporary, with the benefit expansions expiring at the end of July and the additional coverage for gig workers expiring at the end of 2020. Congress should create triggers for UI to automatically raise benefit amounts and lengthen the duration of benefits during periods of high and rising unemployment.
In addition, many states will struggle to pay the benefits for an influx of newly unemployed workers. Over 30 states’ UI trust funds do not currently meet the recommended solvency level. Beyond the costs of providing regular UI benefits, states need funds to effectively administer programs. From 1999 to 2019, federal grants to state UI programs dropped 30 percent. State UI systems have struggled to keep up with the flood of applications, and while Congress has provided additional funding for state administrative costs and interest-free loans to state trust funds in the Families First Act, it is likely that states will need additional resources as eligibility, work-sharing, and self-employment assistance are expanded.
Displaced workers need a more comprehensive solution. In Automation and a Changing Economy, the Future of Work Initiative recommended that displaced workers receive long-term income support for up to two years while they are seeking work or enrolled in a training program. Older workers would also be eligible for wage insurance if their new job pays less than the prior one. This approach is similar to the Obama Administration’s 2012 proposal to create a Universal Displaced Worker Program.
Increasing reemployment services
As the economy begins to reopen, displaced workers will need help navigating the new job landscape. Research has shown that career counseling and other reemployment services, such as job listings, job search assistance, and referrals to employers, are a fast and effective way to help workers transition back to work, with one study finding that reemployment services saved money on net due to reduced UI benefits.
Unfortunately, our public workforce system is underfunded, resulting in a lack of reemployment services even prior to the current crisis. The US invests far less on programs that are aimed at helping workers find jobs than many other developed countries, spending just 0.11 percent of GDP on these programs—half the share it spent in 1985. In contrast, Canada spends 0.24 percent of GDP on similar programs, Germany spends 0.63 percent, and France spends 1.01 percent.
The workforce system also has fewer resources than it had during the last recession. At the beginning of the Great Recession, the US was spending $4.2 billion on workforce reemployment programs. As the economy declined, the number of workers looking for these services rose by 200 percent, and in response, Congress boosted funding by 40 percent. In contrast, the US currently spends $3.1 billion on workforce reemployment programs. In response to historic levels of unemployment and the prospect of an unprecedented drop in economic growth, Congress only included an additional $345 million, or an 11 percent increase, to address workforce development programs. The National Skills Coalition has proposed investing $15 billion in programs authorized under WIOA, Employment Services, and the Perkins Career and Technical Education Act to help prepare workers to reenter the workforce. These recommendations are reflected in the Relaunching America’s Workforce Act.
In addition, states should explore using technology to help workers identify job opportunities that fit their skillset and work experience. For example, states like New Jersey and California have created websites specifically tailored to the COVID-19 crisis to help job seekers identify employers that are hiring. Businesses are also forming partnerships to help laid-off workers identify immediate job openings.
Investing in high-quality education and training
As the economy recovers slowly, displaced workers will need new jobs, and education and training providers will play a critical role in facilitating these transitions. The Great Recession provided a cautionary lesson about providing training that wasn’t directly connected to jobs that were locally available. For the millions of workers who could be displaced and are subject to stay-at-home requirements, now may actually be an opportunity to begin identifying training programs, especially those that can be offered remotely. Of course, remote training is limited to those who can afford and have access to the proper technology to participate in this form of training, and federal and state governments should move aggressively to expand efforts on this front. Workers themselves appear to see the necessity of training at this critical moment: a recent survey from Strada Education Network found that one-third of workers think that if they lost their job, they would need additional education and training to get a comparable job.
Yet the COVID-19 crisis is also creating severe challenges for education and training providers. State revenues are estimated to drop dramatically, impacting the ability of states to fund post-secondary education and training. While the federal government has provided very modest funding for higher education and workforce development in the most recent stimulus bills, more federal support is needed to help prevent large funding cuts to education and training providers.
In response to the Great Recession, the Trade Adjustment Assistance Community College and Career Training grant program (TAACCCT) provided $1.9 billion to over 60 percent of the nation’s community colleges to develop or redesign over 2,600 programs of study to align with local and regional employer needs. A recent New America analysis of 36 separate studies found that TAACCCT grants boosted educational attainment, employment rates, and wages. These grants expired in 2018 but could be restarted. In addition to these targeted grants, prior to the COVID-19 crisis, the Aspen Economic Strategy Group had proposed increasing federal funding for community colleges to boost educational attainment, expand opportunities for mid-career skills development, and provide better career pathways for workers without college degrees.
In addition to increased funding, new mechanisms are needed to help workers finance and access education and training opportunities. Establishing worker-controlled Lifelong Learning and Training Accounts—co-funded by workers, employers, and government—would help people pay for education and training opportunities over the course of their careers. Other countries, like Singapore, France, and Canada, have taken this approach. Over the long run, these accounts are designed to help workers build up funds during employment that they can use to pay for education and training opportunities throughout their careers or during periods of unemployment. In the midst of an economic downturn, policymakers could waive the required matching worker contributions and make deposits directly into workers’ accounts, or alter the eligible training opportunities to guide workers toward high-demand industries, like healthcare.
