The end of the COVID-19 pandemic may be in sight, but how do we prepare for a new economic environment once the health crisis is behind us? The negative economic impact of the health crisis cannot be overstated. In 2020, the domestic economy contracted by 3.5%, the largest decline since World War II. During the year, the unemployment rate reached nearly 15% at its peak as Americans lost 22 million jobs between February and April. Recent data shows that the economy, while slightly improved, remains in a perilous state. There are approximately 9.5 million fewer jobs than in February 2020. While the unemployment rate currently sits at 6.2%, experts suggest that the real rate is closer to 9.5% after accounting for, among other things, the more than 4 million workers who have dropped out the labor force. These facts do not exist in isolation. When individuals lose their jobs, the impact is felt in many facets of their lives. A January 28, 2021 report by the Center on Budget and Policy Priorities revealed that nearly 1 in 6 adults in households with children lacked sufficient food. 21% of adult renters report being behind on rent. 35% of adults report difficulty paying for usual household expenses such as car payments, medical expenses, and student loans.
In a recent post in the COVID-19 and The Law series, Beshoy Shokralla noted that the government response to the economic fallout can be divided into two categories: (1) financial support through direct cash payments to citizens (e.g., stimulus payments and unemployment benefits), and (2) temporary relief from financial obligations (e.g., rent moratoria). The Biden-Harris Administration’s American Rescue Plan extends and enhances these policies in order to provide the economic relief that Americans desperately need right now. With that said, the government – at both federal and state levels – must also consider policies that prepare citizens for the post-COVID-19 economy. With the pandemic accelerating business trends and reports indicating that certain types of jobs may never return, it is clear that well-executed government-funded job training programs can have a significant impact on economic recovery plans. While these programs were necessary before the pandemic, as this post will review, the need for them has increased. Rhode Island serves as an example of a state that has risen to the challenge and can serve as a model for other government officials.
The Pre-Pandemic Skills Gap
American stock indices were in the midst of a record decade-long bull market and the broader economy was in a sustained period of economic expansion before the COVID-19 pandemic. Despite these headline numbers, many government officials and business experts agreed that the skills gap – the discrepancy between the skills that workers have and the skills required by employers – was an ongoing risk. In a 2017 McKinsey study, the consulting firm found that nearly 70 million Americans, nearly one-third of the workforce, would need to either develop new skills or enter different industries by 2030. Per the report, approximately 50% of activities in the workforce were susceptible to technological disruption, including jobs such as paralegal work, accounting, operating machinery, and preparing fast food. As noted by Brookings, men, young workers, and underrepresented communities are overrepresented in more automatable occupations. This suggests that “automation is going to affect demographic groups unevenly.”
One did not have to wait until 2030 to see the effects of the skills gap highlighted by McKinsey and others. In a 2019 report by the Society for Human Resource Management (SHRM), 75% of human resource professionals who had difficulty in recruiting candidates stated that skills gaps were a factor. This was seen both in middle-skilled (e.g., carpentry, plumbing) and high-skilled (e.g., data science, engineering) jobs. These are jobs that are either difficult to automate, are enhanced by technological innovation, or in some cases, contributing to automation.
The Impact of the Pandemic
The COVID-19 pandemic caused a rapid change in the labor market and many of the jobs and industries that were already vulnerable to the technological disruption described above suffered at a disproportionate rate. And unfortunately, the reality is that the virus is still devastating communities and despite the development of vaccines from Pfizer, Moderna, and Johnson & Johnson, the end of the pandemic and the return to a “new” normal is not excepted for at least several months. Offices and workplaces will likely remain closed or used in a very limited capacity. According to the U.S. Bureau of Labor Statistics, the longer businesses remain in this state, the more likely it is that the rate of job automation will continue to accelerate. This is already being seen in the food services industry where, as Brookings notes, “concerns about the pandemic and the necessity of maintaining our food supply chains have pushed many businesses in these industries to increase their investments in automating or artificial intelligence technologies.” Notably, the increased investment builds on the over $500 million in automation investments that have happened over the last three years in the industry. This means more self-service kiosks, robots, and other technology that does work that would have previously been done by a human. It is this reality that explains, at least in part, recent estimates that 42% of pandemic-related layoffs will be permanent.
Back to Work RI: A Model for Other States
While key aspects of the COVID-19 pandemic have been politicized, it is promising that need for government-funded job training has received bipartisan support. In May 2020, for example, Sens. Amy Klobuchar (D-Minn.), Ben Sasse (R-Neb.), Cory Booker (D-N.J.), and Tim Scott (R-S.C.) introduced the Skills Renewal Act, a bill that would allow Americans who lost their jobs due to the pandemic a fully refundable $4,000 tax credit that could be used to offset costs of job training through apprenticeships, certificates, and 2-4 year programs through 2021. Such a program, if enacted by the new Congress, would not only prevent existing skills from atrophying – a concern raised by Federal Reserve Chairman Jerome Powell – but would also help in developing new skills for a post-pandemic labor market. This bill came after Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in late March 2020, which provided states with grants for job training programs.
“Back to Work RI,” a $45 million workforce development initiative spearheaded by Former Rhode Island Governor Gina Raimondo, can serve as a model for government officials looking to respond to both the immediate unemployment issues raised by the pandemic and the long-term trends that were threatening the labor market. The program, which Governor Raimondo believes will “give Rhode Islanders the skills and support they need to succeed in the new [post-pandemic] economy,” offers a career coach to provide personalized job counseling and resources to learn new skills and prepare for new jobs. It recognizes the reality around the difficulties that hold individuals back from such opportunities and in response, provides support such as childcare, technology access, and language support. There are two aspects of the program that suggest it is targeted for long-term success. First, as a public-private partnership, the skills participants are learning are not only relevant, but also can be used in jobs immediately because the skills individuals learn are actually in demand. Second, it prioritizes unemployment insurance claimants and traditionally underserved communities who are bearing the brunt of the economic impact. As state and local officials consider solutions for their respective states, they should consider the Back to Work RI model and its focus on real, equitable results.
In short, government officials must consider solutions that address both the short- and long-term economic impacts of the COVID-19 pandemic. Well-executed government-funded job training programs that is tailored for both large and small businesses and delivered in an equitable manner can have a significant impact on the recovery and ensure that no one gets left behind.