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BBA Economic Digest: A Wobbly Recovery

A Wobbly Recovery The U.S. labor force reached a high of 164.6 million persons in February 2020, just at the start of the COVID-19 pandemic in the United States. Nearly 21.5 million Americans lost their jobs in March and April and only around half of those jobs have returned.

  • The latest Bureau of Labor Statistics data show around 141 million employed in the U.S., compared to 152.5 million in February.

  • Both the labor participation rate at 61.7 percent, and the employment to population ratio, at 56.5 percent, are historically low and well below their levels in February.

As of Aug. 22, according to labor data, 29.6 million people were on some form of unemployment insurance, nearly 20 times the 1.59 million on jobless benefits during the same period last year. “The unexpectedly high levels of claims underscore the uneven nature of the labor market’s recovery,” Bloomberg’s Reade Pickert reported. “Many businesses are hiring or bringing back workers, yet millions remain unemployed and others are on the chopping block as more companies announce job cuts and small-business aid runs dry.” Some economists are raising alarms about the wobbly recovery.  “Layoffs remain widespread and the labor market remains in a fragile place at a critical juncture,” Nancy Vanden Houten, lead U.S. economist at Oxford Economics, told Reuters. “Failure on the part of policymakers to enact another fiscal relief package poses significant downside risks to the economy and labor market.” Ann Elizabeth Konkel, an economist at Indeed Hiring Lab, told The Washington Post that the latest report “really points to mounting damage from the coronavirus.” Bloomberg economist Eliza Winger said that the “labor market recovery appears to be flattening well shy of the pre-pandemic peak.” Good news is that the unemployment rate did drop to 8.4 percent in August, but about 1.1 million furloughed workers are being counted as employed, and roughly 3.7 million people have left the workforce since March. Factoring in those details, some economists say a more realistic unemployment rate would be closer to 9.9 percent.

Relief is No Decentive Conservative and liberal economists agree that the $600 supplement that jobless workers were receiving did not deter them from accepting a job. But the relief is not only a matter of contention among business owners, it  has also held up agreement in Congress on a new aid package. Democrats want to extend the full $600 payment, while Republicans want no more than $200, arguing that the extra income deters people from working. For most people collecting unemployment benefits, there are simply not enough jobs. About half of the 22 million jobs that evaporated with the coronavirus outbreak have not yet returned. With the supplement, nearly seven in ten jobless workers got a bigger payment from the government than from their previous employer, according to one study. On its face, choosing to get more money and not work would seem more appealing. But a Yale University study found "no evidence that more generous benefits disincentivized work either at the onset of the expansion or as firms looked to return to business over time.” Five other studies by different groups of economists produced the same results. A survey last month by Franklin Templeton-Gallup found most people said extra government relief would not keep them from going back to work.

Pandemic Inspires Career Changes

The pandemic has hit the US economy and job market hard, battering some industries beyond recognition. That's inspired many job seekers to change careers altogether, according to a new study. About 61 percent of U.S. job seekers surveyed -- which includes people who are looking for new roles and people who are unemployed -- have looked for a job in a new industry because of the pandemic, according to a new Morning Consult survey. Economic developers take note: More than 27 percent of those surveyed expect that some or all of their skills will become irrelevant in the next five years. Nearly half said they would quit their current job to go to a different company if the new employer provided company-funded skills training. Amazon commissioned the study as part of its announcement of Career Day, an event on September 16 in which a team of 1,000 Amazon recruiters will hold 20,000 free career coaching sessions. The company said it now has 33,000 open job slots to fill. More than half of the Americans surveyed who are currently looking for a new job are doing so because of the pandemic, according to Morning Consult.

Man, Machines and the Nature of Work

Over the last century, machines have replaced humans in many tasks. Not surprisingly, fears of robot-induced unemployment often dominate discussions over the future of work. 

On balance, however, technology has created more jobs than it has displaced. Still, we are witnessing something quite new. The digital economy has driven a fundamental shift in the nature of work.

Companies now profit from software and digital platforms often with few employees. The changing nature of work, the digitalization of everything, is the biggest challenge facing economic developers (and governments) everywhere.

The demand for less-advanced skills is declining, whereas the demand for advanced digital skills will continue to rise. It was one of my major themes before the pandemic when speaking at economic development conferences. It will continue to a major theme of mine after the pandemic.

Quite frankly, this is a pivotal time for communities. If they are to prosper and grow, the will have to invest more in lifelong learning. It starts with early childhood development programs and formal schooling, through to higher education and adult learning programs.

Now that we are living with Covid, we should realize that this partnership of people and machines will be a long-lasting result and redefine the future of work. Indeed, the pandemic forces us to think about how technology can augment and even improve our current jobs.

"Pairing robots that can do the physical work with humans that provide true intelligence, perception and the ability to make decisions can enable work to continue in environments that would otherwise be unsafe or simply unpleasant for humans," writes Robert Playter, CEO of Boston Dynamics, for CNN Business.

The downside is that the pandemic broadens the threat from automation to low-skilled, person-to-person services workers. This is what economic developers need to concentrate on -- leaving no one behind.

"All of this will mean that the demand for certain types of labor will decrease. This shift will almost surely increase inequality — accelerating, in some ways, trends already in place," writes Joseph Stiglitz, a professor at Columbia University and a recipient of the Nobel Memorial Prize in Economic Sciences.

Down But Not Out Business still has not returned to normal six months after the coronavirus pandemic first appeared in the U.S., but the pandemic has not been as bad as many businesses feared. Most are now up and running, according to a new survey from Goldman Sachs. Among the findings:

  • Nearly three-quarters of the businesses surveyed say they are fully open, up from just 39 percent in April and 53 percent in May.

  • Just 2 percent of businesses say they are temporarily closed, compared to 19 percent in April.

  • 25 percent of businesses say that the pandemic has greatly hurt their finances, down from 33 percent in April.

  • 21 percent say the pandemic has not hurt their personal finances, up from 14 percent in April.

But, but, but: About a third of the small businesses surveyed said they had already laid off workers and 36 percent say if no new funding comes from Congress soon, they will lay off workers or cut back hours.

  • Without additional government funds, 30 percent say they will exhaust all of their cash reserves by year-end.

  • 16 percent say less than a quarter of their pre-COVID revenue has returned thus far.

  • The 65 percent of owners who believe their business will survive is the lowest in the survey thus far, down from 73 percent in July and 68 percent in April.

Despite unparalleled aid from the Federal Reserve and Congress, large company bankruptcies spiked 244 percent in July and August from the same period of 2019, according to the investment bank Jefferies. Aviation bankruptcy filings are up 110 percent on an annualized basis, while oil and gas filings have climbed 45 percent, Jefferies said. Entertainment bankruptcy filings are also up 22 percent. However, the overall number of bankruptcies among all companies has not surged. At least not yet. The total bankruptcy count for 2020 is down 14 percent from the same period of last year, according to Jefferies.

First Question Simple questions can be the most profound and the hardest to answer, especially when it comes to self-assessment, a courageous exercise required for improvement. I'm currently working on a virtual SWOT analysis for an economic development organization, characterized by one-on-one, off-the-record, not-for-attribution interviews with community stakeholders. My first question, one that piqued the interest of the executive director of this EDO is this: "What is the mission?" "I'll be very interested in hearing the answers that you get to that one," he told me. Certainly organizations should adapt to a changing world, but they should also have a fixed anchor on what is truly sacred and what is not. The mission is the glue that holds an organization together. Famed business consultant Peter Drucker believed a mission statement should fit on a T-shirt, saying why you do what you do. It should be clear and inspire. His cautionary note: Never subordinate the mission in order to get money. Economic developers should remember that changing lives is the starting and ending point. It is very much a part of their mission.

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