Covidnomics

This is the August 12 edition of TPN Member Diane Francis’ newsletter. Read other installments and subscribe here.

Pandemics upend societies and economies and the Covid crisis has been no less disruptive than others. The “Plague” or “Black Death” began in 1346 and swept Eurasia and North Africa for generations, decimating populations and driving people away from infected areas. This led to an acute shortage of farm labor which forced Lords of the Manor to improve terms of tenure and eventually ended serfdom. In addition, the casualties were so sizeable that inheritance laws were changed to allow second sons, subsequent sons, and even daughters to be willed vast estates or kingdoms.

The next catastrophic pandemic, influenza, struck in 1918 and killed 50 million. It too profoundly altered society. Widespread public health actions were taken for the first time — such as warnings, precautionary measures, treatments, and quarantining — and the catastrophe led to socialized medicine, now provided in most developed nation-states.

The COVID catastrophe of 2020 has killed millions, but fortunately, vaccines, along with strict public health edicts and lockdowns, have slowed its advance. Nonetheless, the disease is transforming societies and economies and, like the plague, is shifting the balance of power to labor in a profound way. Lockdowns bankrupted businesses and forced others to allow their workers to work remotely. Now the work-at-home preference is ascendant and is transforming the workplace along with real estate values, urbanization, employee attitudes, and remuneration.

More Americans are quitting their jobs than at any time in 20 years, according to the U.S. Labor Department. Most do so for safety reasons: to avoid exposing themselves to unvaccinated people and new variants in subways, trains, buses, offices, elevators, and densely packed cities. Others prefer the lifestyle and disdain the cost and time spent commuting. The result is that “remote work” is now a desired benefit and employees now shop around for employers that will let them stay at home. Further, those who continue to remote-work are relocating beyond commuting distance and taking advantage of lower real estate and living costs.

Avoiding the office is clearly the preference among Generation Z workers, who total 68 million Americans born between 1997 and 2012. Polls show that half of them say they’ll leave their job if they are not given a remote work option or at least a hybrid one which consists of a mix of part-time in the office and part-time at home. And these young workers aren’t alone. Estimates are that up to 30 percent of the American workforce will be working remotely, full or part-time, by the end of 2021.

As lockdowns disappear, workers are making these preferences known and companies are feverishly polling their staff to help set policies for the future. Not surprisingly, America’s tech giants are ahead of the pack and in June Facebook announced that its 60,000 workers could request a schedule of their own choosing. Cisco’s 75,000 workers were told that they don’t have to return to the office if they don’t want to. So far, it’s a patchwork quilt of work models but the pressure is on corporations to adjust to the new reality that people don’t want to commute or dress up every day to earn a living.

Tech firms, who employ highly skilled personnel who are younger than most, are not the only sector bending to the new reality. Traditional midwestern insurance giant Allstate Corp. with 45,780 employees faced a tsunami of threatened resignations and decided that 75 percent of roles can be performed remotely, and another 24 percent can be done on a hybrid basis, with workers splitting time between home and the office. The remaining one percent must go back to a pre-Covid-style office setting such as top executives and certain people in field offices with customer-facing roles.

Besides facing the Great Resignation, companies must cope with the Great Relocation. Nine percent of Silicon Valley companies permanently left the Bay Area to escape its high taxes and housing costs. Some 10 percent of Twitter’s staff have relocated and many companies are offering relocation bonuses of up to $30,000 to encourage workers to move to regions like Idaho or Georgia where they need personnel and want to recruit more.

The pandemic has essentially handed labor a powerful lever and now there is upward pressure on other benefits such as four-day workweeks. Some workers are demanding bonuses to return to the office. This movement for better pay and conditions has extended into lower-paying sectors, like restaurants and hospitality, where wages have been low for years and exposure to the public is a danger. This has led to labor shortages, and upward pressure on wages aided by legislation in several states to raise minimum wages. This summer, President Joe Biden signed an executive order which raises the minimum wage to $15 an hour for the millions who work for Federal contractors.

The fact is that America’s lower-wage workers have had a raw deal for some time. For instance, Denmark pays $16-an-hour minimum wages and Big Macs there sell for $1 apiece less than in the United States where nobody can live on the paltry minimum wages that exist in most parts of the country. In some states, minimum wages in restaurants, where tipping is allowed, are as low as $3 an hour.

The implications are profound: some downtowns are becoming ghost towns, commercial rents are collapsing, and the economic structure of cities is changing as food services, commercial real estate, retail, entertainment, and hospitality venues disappear. Even fashion is changing as people have gotten used to working in their pajamas or tracksuits and bristle at the thought of donning Brooks Brothers suits or high heels.

Of course, some members of the older generation resist. Morgan Stanley CEO James Gorman said: “If you can go to a restaurant in New York City, you can come into the office.” Or JPMorgan CEO Jamie Dimon who said: “People don’t like commuting but so what? Remote work doesn’t work for those who want to hustle.”

Such threats or insults may resonate with some, but not with the majority of workers. It’s clear that defying this trend is like trying to put the toothpaste back into a tube. This pandemic, like others before, has brought about a shift in attitudes as well as the four-day work week, flex time, hub-and-spoke office configurations, hybrid work schedules, a flight out of crowded cities or suburbs, and, most significantly, new opportunities for those living in rural or smaller urban centers to be hired as remote workers by huge corporations.

Tech legend Marc Andreessen and calls remote work a “permanent civilizational shift. Permanently divorcing physical location from economic opportunity gives us a real shot at radically expanding the number of good jobs in the world while also dramatically improving the quality of life for millions, or billions, of people. We may, at long last, shatter the geographic lottery, opening up the opportunity to work with countless people who weren’t lucky enough to be born in the right place,” he said.

Already, knowledge workers are embracing this new era, working and living where they wish in Idaho or a wifi-equipped cabin in the woods or boat. Those who resist this upheaval caused by the pandemic, or believe it simply cannot happen or will be reversed, were wrong in 1349 and they’re likely wrong now.