How Covid-19 Transformed the U.S. Economy

Covid-19 arrived as an emergency. It’s turned into a catalyst for lasting economic change.

The pandemic now in its third year has redrawn the map of the U.S. economy, reshuffled its labor force, and reupped the toolkit available to its policy makers. All of those shifts appear likely to outlast the health crisis that triggered them.

American workers are on the move, as the economy tilts away from its historic coastal strongholds. They’re also more likely to be found at home during office hours, after a remote-work revolution.

Companies are scrambling to hire—but they’re investing in machines too, with automation and e-commerce gaining ground. Entrepreneurship is on the rise. Politicians have discovered the power of direct payments, which shored up household and business finances in the pandemic, and may be back next time there’s a downturn. Consumers are grappling with the biggest jump in the cost of living for generations.

What all of this means for already-sharp income and wealth divides is a key question for the post-pandemic era. The richest have pulled further ahead. Work-from-home advantages skew to educated professionals. Low-income workers are winning pay raises in a tight labor market—but inflation is eating away at their gains.


How unemployment rates have differed by state over the past two years

Source: Bureau of Labor Statistics

One thing is clear: there’s no going back to the American economy as it was in early 2020 when Covid hit.

“Betting that these changes will all fade away would be one of the worst bets possible,” says Nobel laureate Michael Spence, a dean emeritus at the Stanford Graduate School of Business. “The changed patterns of work, the impact of the pandemic on what kinds of jobs people want to have, when they want to retire.”

Following is a roundup of pandemic changes that look like they’re here to stay.

Remote Revolution

Corporate giants are setting deadlines, but millions of Americans will likely never return to a five-days-a-week office regime. Nick Bloom, a Stanford University economist, anticipates 25% of work will be done from home after the pandemic ends. And a recent survey found the average U.S. employee values two to three days of remote work each week as much as a 6% pay hike—and that many would seek a new job if required to come back to the office permanently.

Staying Remote

Weekly occupancy of office buildings has improved but remains well below pre-pandemic levels

Source: Kastle Systems

Office occupancy rates, which were running at 99% before the pandemic, now range from 30% to 50% across several major U.S. cities, according to Kastle Systems. Many expect those numbers to “grind higher,” says James Pomeroy, an economist at HSBC Holdings Plc. “It’s worth keeping in mind the alternative: that occupancy could be already close to a peak.”

Workers who want to stay home have a powerful bargaining chip. Since firms are struggling to attract or retain employees, they’re under pressure to offer remote-work options. And the tight labor markets may persist after the pandemic, with the population growth rate at a record low.

Ultimately, the remote revolution could help the U.S. offset those difficult demographics, says Bloom. There are significant segments of the population, from the disabled to those looking after young kids or retirees, who wouldn’t take a job that requires five days of commuting—but are willing to work from home.

“That's a very positive effect,” says Bloom. “But it's going to take time.”

Moving Inland

As well as changing daily routines, remote work is helping redraw the economic map. Hundreds of thousands of Americans have fled coastal cities like New York and San Francisco for more affordable locations in southern or mountain states.

Wall Street financiers have been heading south to Florida, and tech companies are increasingly looking inland. More than four in ten listings for higher educated white-collar jobs at West Coast tech firms are outside the region, according to an analysis by the Conference Board, a sharp increase since 2019.

That’s heating up many local economies, and bringing drawbacks of its own. Some of the hottest pandemic housing markets have been in cities like Boise, Idaho and Phoenix—which between them have more than 100,000 additional workers compared with before Covid. Local employers are having to compete with big-city wages.

Winners and Losers

While home prices have shot up across the country from February 2020 to March 2022, job recoveries differ by city

Sources: Zillow, Bureau of Labor Statistics

Still, those are problems associated with a boom, and the places dealing with them can count themselves among the winners.

There's about eight states that have accounted for the bulk of the shift, says Mark Vitner, senior economist at Wells Fargo & Co., listing Texas, Tennessee and the Carolinas among them. Businesses have been “chomping at the bit” to relocate to places that had a less stringent Covid policy, he says.

Labor's Moment?

Job openings are near record highs, and states from Georgia to Utah have all-time low unemployment rates—quite the turnaround since the spring of 2020, when more than 20 million Americans lost their jobs in a matter of weeks. Labor markets may not always be this tight, but slower population growth and immigration should prop up demand for workers.

And there are some key industries where that demand is booming, and likely lasting. Transportation and warehousing may be the best example. Employment is up more than 600,000 from February 2020, as a long-term shift toward e-commerce accelerated in the pandemic.

Those new jobs aren’t coming at the expense of bricks-and-mortar retail, where employment has climbed back above pre-pandemic levels. Transportation and warehousing has been a haven for many workers who lost jobs in leisure and hospitality, where employment is still well below what it was in 2019. They’re often better paid, too.

With so much switching going on—about one in five adults quit their jobs last year—Erica Groshen, senior economics adviser at the Cornell University School of Industrial and Labor Relations, says there’s reason to hope for a broader rethink among employers, which could bring more stability for workers.

“There's been a very strong emphasis over the past 20, 30 years to containing costs and particularly personnel costs,” she says. “Personnel management strategies might shift a little bit more toward wanting to provide long-term careers to people.”

The energization of U.S. unions could help, too. This month, workers at Amazon’s warehouse on Staten Island in New York City voted to unionize, an historic victory for the labor movement.

“We could have more worker voice in the workplace than we have had for a while,” Groshen says.

Kiely Dolce, 40, accepted her dream role as a content designer at Meta, Facebook’s parent company, in late 2020. The company offered her the option to work fully remote, an opportunity that allowed her household to buy a home and be close to family.

“If we had to move to Menlo Park, California, we were no longer going to be able to afford to buy a house or save. We would have no family for help with any childcare,” Dolce said. “It was really empowering. I felt like I could live anywhere and have the opportunities of my dreams that I've worked so hard for.”

Photographer: Dustin Franz/Bloomberg

Scott Randall, 56, retired early from the company he’d been working at for nearly 37 years. He was able to pay off his debt and now has the time to focus on pursuing his passion for photography. He hopes to work for another 10-plus years.

“I've been very much of an entrepreneur spirit and have utilized that in the workforce,” said Randall, who lives in Greenville, South Carolina. But I “want to take that and work it for me for a change.”

Photographer: Jack Sorokin/Bloomberg

David Boyd, 56, owns and manages the Takoma Station Tavern, a D.C. bar that has been offering live music for generations. The business, which once hosted the likes of Wynton Marsalis and Chuck Brown, struggled early in the pandemic but quickly adjusted to offer in-house sports betting along with live music, food and drinks. Boyd also had to make do with a much smaller staff.

“Waiting is something I never did, but I’ve learned how to do that now,” said Boyd. "Managers and owners have to begin to start doing the same things that the folks that you paid to do.”

Photographer: Melissa Lyttle/Bloomberg

More Robots

One fear for many U.S. workers is that they’ll lose their jobs to robots. Labor shortages and rising wages have pushed businesses to invest in technology that automates routine tasks.

Restaurants and bars, for example, are switching to app-based or digital ordering. McDonald’s Corp. has been rolling out kiosks where customers tap in their orders, and says it’s looking into automation of frying and grilling too. Hilton has expanded a system of contactless check-in via mobile phones. And United Parcel Service Inc. said automation initiatives, like label application, have freed up 1,200 people inside their buildings this year.

That kind of technology can augment human labor as well as simply replacing it. Still, Daron Acemoglu, an economist at the Massachusetts Institute of Technology, says he’s worried that the shift will end up limiting job opportunities for people without degrees, and making America’s income and wealth gaps even worse.

“Most firms will not reverse their automation decisions once they have installed robots or self-checkout kiosks,” Acemoglu says. “The increased automation in many consumer-facing industries might mean even fewer decent jobs for low- education and some semi-skilled workers.”

Have Some Cash

In response to the pandemic, the government sent out direct payments to Americans on a scale that had never been tried before—three rounds of checks adding up to as much as $3,200 per adult, and even more for families with children.

Their delivery, via the Internal Revenue Service, proved smoother than other parts of the relief package like expanded unemployment benefits, which got snarled in bureaucracy. That’s one reason why the tool will likely be deployed again in future downturns, says Claudia Sahm, director of macroeconomic research at Jain Family Institute and a former Federal Reserve economist.

“If you want to deliver economic support, this is a really good way to do it, because you can actually get the money out,” says Sahm. There’s room for refinement, she says, with more debate likely next time about the timing and size of direct payments.

But the policy also has its critics, who blame the handouts for fueling inflation and adding to the national debt.

Wins for the Wealthy

Government aid helped even the country’s lowest-paid workers bolster their savings. Still, the decades-long trend that’s seen wealth concentrate at the top persisted during the pandemic.

The richest 1% of Americans enjoyed a surge in their net worth, driven by the rapid rebound in stock and housing markets.

The Rich Got (a Lot) Richer

Change in wealth held by percentile group

Note: Discrepancies may be caused by rounding Source: Federal Reserve

Meanwhile the long-term squeeze on the middle class continued. The middle 20% of U.S. households by income saw their combined assets drop to the lowest share of the national total in Fed data going back three decades.

Go It Alone

Companies received support, too –- one reason why the pandemic didn’t turn into the conflagration of small businesses that some had feared. Many were indeed forced to close their doors. But there’s also been an unprecedented surge in entrepreneurship.

Before Covid, Americans typically filed about 290,000 new business applications a month. But the figure surged in 2020—and it’s remained well above pre-pandemic levels into 2022, with about 415,000 filings in March.

That’s partly due to government support for household finances, which shored up demand for goods and services. The broader re-think of working life triggered by Covid also helped persuade many Americans to take the leap into self-employment.

The entrepreneurial spirit was alive across the country, with almost three-quarters of U.S. counties reporting an increase in the number of businesses, according to a study by the Economic Innovation Group. Professional services and freight trucking were among the fastest growth areas.

Inflation Is Back

The pandemic recovery has finally brought the boogeyman out of the closet. After decades when inflation was subdued, often dropping below the Fed’s target rate, it’s now running at the fastest pace in 40 years.

That means most Americans have never seen the kind of price increases they’re confronted with today. Even workers getting better-than-before pay raises now have to weigh them against the rising cost of living.

Surging Prices

Note: Electricity, used cars and food at home use annual percent change data. Sources: AAA, Bureau of Labor Statistics

They may have to get used to it. Many economists think the kind of supply-chain disruptions that helped cause the pandemic inflation are likely to be a recurring feature in an age of climate change and geopolitical tensions like the war in Ukraine. Some say demographic shifts will contribute too: since workers will likely be scarce, they’ll enjoy more bargaining power to push wages up.

Already, resurgent inflation is threatening Democrats’ prospects in midterm elections this year, and pushing the Fed onto an aggressive path of interest-rate increases to stifle it. It’s an example of how the pandemic has injected new uncertainties into economic life.

“The economy as a whole is more robust than I think we'd ever imagined,” says Justin Wolfers, professor of public policy and economics at University of Michigan. The flip side, he says, is “that maybe—and these two things can both be true—prosperity is more fragile than we might have imagined.”

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