The Great Reallocation of 2020: Why Workers are Changing Fields

July 3, 2021

At this point in the pandemic, it is no secret that COVID-19 has crippled the United States economy. The hysteria around inflation and unemployment may be warranted, but these issues are only the tip of the iceberg.

Between mandated lockdowns, decreased store capacities, and reduced hours, many businesses have lost profits and some were forced to permanently close entirely. There have only been a few other times in recent American history where companies have suffered at this large scale: the Great Depression and the Great Recession— both monumental losses in America’s history. At the heart of it all, these problems have been caused primarily by the U.S. government.

Many feel that the effects the pandemic had on businesses, especially workers, have been manufactured. Some policies put in place were often counterproductive. For instance, reduced store hours often only squeeze the same amount of shoppers into a tighter time frame, increasing the number of people in a store at any given time. Policies like this negatively affected employees. Reduced hours for the stores means reduced hours for the employees. Reduced hours mean reduced pay and reduced pay could mean not putting food on the table for some families. Desperation is now a common trait among American workers.

The unemployment rate did not peak as high as it did in 2020 for almost a century. The landscape of the labor force for many has become dystopian. Workers have been laid off in ridiculous ways. Careers that have lasted decades disappear with a single email. In most cases, the only reason for letting a worker go is that the company can not afford to employ as many as it once could. The worker may not have necessarily done anything wrong, and the policies businesses must follow create no other option than to fire many of their employees.

Rapid layoffs and decreasing profits cannot create any prosperous nation. Communication has dissolved into nothing but Zoom calls and emails. Desperate, worried, and frustrated are only some of the many words to describe the average American worker. 

There is, however, some hope. President Biden attempts to provide some optimism for the American worker. In his first address to Congress, President Biden claimed, “America is on the move again.” 

In his statement, he summarized the United States’ current economic status. Biden follows his claim by naming two significant changes for workers: a $15 minimum wage and the proposed Paycheck Fairness Act. In short, the Paycheck Fairness Act will attempt to close a pay gap—  one whose mere existence is still debated—  between men and women and added workers’ rights for negotiating salaries. Biden’s plan for the Paycheck Fairness Act is that it will decrease discrimination between men and women in the workplace by closing the gap in pay. The act will also give workers a safer stance to negotiate because it punishes employers who act upon workers discussing their wages with another.

The White House has also shared Biden’s remarks on the May job report. In all his excitement, Biden states, “This morning, we learned that, in May, our economy created 559,000 new jobs, unemployment rate fell to 5.8 percent, and wages went up for American workers.” 

The news is great, but it does not warrant celebration quite yet. 

Despite Biden’s optimism, economists are still not impressed. Unemployment during the pandemic peaked at 14.8% in April 2020. For comparison, unemployment during the Great Recession peaked at only 10%. Although the United States has brought down unemployment by a significant amount, around 9%, the job is not finished. Of the unemployed workers who had a job before the pandemic, there is a remaining 2% that has still not returned.  

According to the recent job report:

“Among those not in the labor force who currently want a job, the number of persons 

marginally attached to the labor force, at 2.0 million, changed little in May but is up

by 518,000 since February 2020. These individuals wanted and were available for work and 

had looked for a job sometime in the prior 12 months but had not looked for work in the 4

weeks preceding the survey. The number of discouraged workers, a subset of the marginally

attached who believed that no jobs were available for them, was 600,000 in May, little 

changed from the previous month but 199,000 higher than in February 2020.” [Emphasis added]

 

The unfinished business that is American unemployment is a problem that lies deeper than a number. Stephen J. Dubner of the Freakanomics podcast calls this issue “The Great Labor Reallocation of 2020.” Dubner calls attention to  this name because unemployed workers have shifted into other fields. In general, people are not returning to the jobs from which they were previously let go. These unemployed workers sought different jobs or ones in entirely different fields. 

This reallocation of labor is not a new concept to the labor market one bit. The kicker, however, is the size of the reallocation. Never before has there been such a large migration from one field to another. In their paper titled “COVID-19 Is Also a Reallocation Shock”, Jose Maria Barrero, Nick Bloom, and Steven J. Davis claim that 5.4% of the entire labor force saw reallocation in April 2020.

The change of jobs has a lot to do with how consumers react to the pandemic. Areas that have lost much of a demand, like hotels and travel, have seen a giant drop in employment. The same goes for the service industry now that many are working from home. 

Industries like streaming services, however, have seen growth. The reallocation of jobs has been nothing more than a reaction of supply and demand. As some industries crumble during the pandemic, they must fire millions of people. In contrast, industries that flourish in the pandemic must hire millions of people to compensate for their influx of demand. The reallocation reflects a properly working economy, but does it reflect a healthy one?

Although the reallocation of millions of jobs does show one of the most fundamental principles of economics, this does not necessarily mean it is beneficial for workers and consumers. Generally, companies want to hire potential employees who have the most experience within the given field. This desire to hire experienced employees can create trouble for those who are recently out of a job and looking for new work. If one industry is experiencing some losses, most jobs in that industry are not looking to hire. So, if a person is fired from one sector, the primary option is to change industries entirely. The type of industries that see this effect, however, is limited.

Many jobs require some certification to enter the field as well. Hospitals will not hire any new doctors that do not have a medical degree. The cost of entry for many fields is high, but this high cost often means that workers are more valuable and therefore less likely to be laid off. 

It is the areas that do not have high costs of entry that are most affected by job reallocation. Areas like the service and construction industry often do not have high barriers of entry, which allows them to employ high volumes of people. However, the downside of this low barrier is that these industries are reliant on high demand of people seeking these jobs. The medical industry is not as dependent upon a high demand because medicine and health are always necessary, so the demand is not as affected as industries that are more of a luxury. The reallocation of workers into new fields, however, can be a problem for businesses.

Some workers, however, once fired, tend to stay within their field. One would not expect a salesman who was let go to be working in medicine a few months later. With the significant change of jobs, the problem is that many people are not as experienced as they were in their previous field. Admittedly, these fields most affected by reallocation are seldom drastically affected by low experience workers, but lack of experience is not usually positive for a labor force.

On the other hand, panicking businesses are also more willing to hire workers with lower experience. For many firms and workers in the pandemic, any port in a storm suffices.

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