Labor and the Economic Impacts of the Covid-19 Crisis
An update of the author’s June 2020 article “How the Coronavirus Crisis Became an Economic Crisis.”
This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org
This article is from the
July/August 2022 issue.
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The economic fallout of the Covid-19 pandemic has been very complicated and has taken many twists and turns. Here are some of the key economic outcomes of the pandemic for the U.S. working class:
- The pandemic resulted in a dramatic increase in remote work, but much more so for higher-income workers than lower-income, for workers with more formal education compared to workers with less formal education, and for white workers compared to workers of color. Lower-income workers and workers of color disproportionately continued in-person work even under dangerous pandemic conditions.
- With schools closed or operating remotely during the beginning of the pandemic, household care responsibilities increased dramatically, falling disproportionately on women. Education workers faced whiplash transitions from in-person classes to remote instruction and then back to in-person.
- Businesses responded to pandemic closure orders and to customers avoiding in-person services and shopping, predictably, by laying off millions of workers. The national unemployment rate, lower on the eve of the pandemic than any time since the late 1960s, spiked to its highest level since the Great Depression of the 1930s. The surge in unemployment disproportionately fell on lower-income workers, people of color, and women.
- As economic output and employment plunged, the federal government stepped in with dramatically increased spending. Expanded unemployment insurance benefits and federal “stimulus” checks added trillions to the bank accounts of households and businesses, cushioning the blow of unemployment and buoying up demand in the economy.
- At one end of the income spectrum, federal spending kept millions out of poverty (though the “safety net” definitely did not catch everyone). At the other end, increased government expenditures, cuts to interest rates, and growth in some sectors of the private economy resulted in rising incomes. Increased incomes and savings, in turn, fueled booms in the stock market and other financial markets.
- As overall economic demand surged, the unemployment rate came down again almost to the lows it had reached on the eve of the pandemic. The economy did not come back, however, in exactly the same shape as before the pandemic. Demand initially shifted from the service sector to the goods-producing sector, and especially durable goods. (By early 2022, services spending had recovered to its pre-pandemic level, while durable and nondurable goods spending were well above their pre-pandemic levels.) Companies like Amazon and Walmart posted record profits as sales boomed.
- With unemployment unusually low and job openings unusually high—known as “tight” labor market conditions—workers gained bargaining power in relation to their employers. The number of voluntary worker resignations surged to the highest levels recorded in the two decades for which data have been consistently collected, a phenomenon observers dubbed the “Great Resignation” or “Big Quit.”
- Worker grievances both longstanding (wage stagnation, low job security, authoritarian management) and newly appearing or worsening during the pandemic (workplace health dangers, overwork resulting from short-staffing) contributed to the wave of worker quits. Most workers who quit, however, did not drop out of the labor force altogether, but instead switched to new jobs.
- For many workers, especially lower-wage workers, real (inflation-adjusted) wages increased as they moved to higher-paid jobs or employers issued raises to avoid losing workers to rival employers. (Nominal wage gains for most workers, however, have been more than offset by inflation.)
- Over the last year, inflation has surged to the highest rate seen in the United States since the 1970s. Employers have raised prices to pass on labor and other cost increases. Supply “bottlenecks” (shortages of key inputs) have made it difficult for goods production to ramp up in response to rising demand, allowing sellers of scarce goods to raise prices. Disruptions to the world petroleum supply, related to Russia’s invasion of Ukraine, meanwhile, have driven up energy prices (not to mention petroleum industry profits).
These zigzags of the pandemic-era economy may seem chaotic, but there are some major themes that run throughout. The economic impacts of the pandemic have reverberated through the structures of the capitalist economy and, in the U.S. context, the particularities of American capitalism.
Profit-seeking capitalist companies reacted to pandemic shocks in ways that protected or increased their profits. When the economy plunged into recession, they predictably laid off workers. When demand surged, they both ramped up production (where possible) and raised prices. The conditions of a worldwide pandemic were unusual, but they did not keep capitalist companies from acting in their usual ways. Since capitalist employers exercise such great power over economic output, incomes, and employment—the private business sector accounts for about 75% of national income (including wages and profits) and 85% of all employment—their decisions have enormous impacts on the rest of society (the pandemic spike in unemployment being a case in point).
The pandemic also showed the reliance of the capitalist economy on the state, even in the era of so-called “free market” or “neoliberal” capitalism. In capitalist societies, the state exercises, of course, coercive and repressive functions (carried out by the police, the prison system, the armed forces, etc.). It also sometimes supplies goods and services that are necessary for the economy to function but that the private sector fails to supply in sufficient quantities. Witness U.S. politicians insisting, in the midst of the pandemic, that public schools resume in-person instruction as soon as possible. They recognized that the private economy depended utterly on public schools to make it possible for parents of school-age children to return to work. Government action is also indispensable in containing the economic instabilities inherent to boom-and-bust capitalist economies and the political turmoil that can follow from them (mass unemployment and destitution are hardly conducive to social stability). Political economists have long recognized that the rational actions of self-interested decisionmakers can add up to “irrational” overall results (like profit-seeking businesses that, from their own bottom-line perspective, sensibly cut production and employment during a recession, but in so doing contribute to the downward spiral of the overall economy). Business leaders may resent government “intrusion” into the economy and especially the expansion of the social welfare state (they prefer, as the great Polish economist Michał Kalecki put it, that the poor be forced to earn their daily bread by the sweat of their brow). However, governing elites may recognize that capitalist economies are not inherently self-correcting, and that state action is often necessary to stabilize the capitalist system as a whole.
The pandemic was a global event that affected virtually everyone. The impacts, however, have not been distributed equally. As we have seen, these have followed the existing contours of inequality—along lines of class, race, gender, etc.—in U.S. society. Incomes and wealth, health care access, job security, conditions of work, burdens of unpaid household labor, and access to social safety net protections are all distributed unequally. In the context of the pandemic, this has meant that people “higher” in just about any of the wealth, status, and power hierarchies of U.S. society have been more likely to come through the pandemic relatively unscathed; those “lower” in these hierarchies, more likely to suffer severely. It may seem “befuddling” and “macabre,” as New York Times writers Neil Irwin and Weiyi Cai put it at the beginning of 2021, that “everything is terrible in the world, while everything is wonderful in the financial markets.” But it really should not be surprising, in the context of a highly unequal society. The story of the pandemic-era economic crisis does not end there. To begin with, the pandemic itself is not over, not with new outbreaks and sometimes new restrictions around the world (potentially creating new economic impacts, such as further supply bottlenecks). In addition, pandemic-era economic shock waves are likely to continue, even apart from the persistence of large-scale Covid-19 infection dangers. For example, if governments try to curtail inflation by tightening the reins on demand (reducing government expenditures, raising interest rates, etc.), the fallout may include another major recession. In addition to these sorts of possible reverberations, at least some of the changes already wrought by the pandemic are unlikely to be fully reversed in a return to post-pandemic “normalcy.” For example, the increased prevalence of remote work—which the pandemic emergency showed was feasible and which many workers prefer—is likely to persist past the end of the pandemic crisis (even if employers are not so sanguine about it). Increased worker discontent with oppressive conditions of work—evidenced by the "Great Resignation"—may also outlast the pandemic itself. Individual worker action, such as quitting a bad job and switching to a better one, however, is unlikely to have deep or lasting positive effects for workers in general. During the pandemic, exceptionally tight labor markets have created an opening for workers to engage in job switching or individually strike better bargains with employers. Tight labor market conditions, however, are likely to be short-lived (at least without economic policies prioritizing very low unemployment, which would represent a dramatic reversal of federal government policies of the last 40 years). Meanwhile, so long as worker organization remains weak, workers are unlikely to reap large or lasting gains in terms of wages or other aspects of labor conditions. Most workers are simply too economically reliant on their jobs and too easy for employers to replace to exercise much individual bargaining power except under unusually favorable labor-market conditions. A significant shift in the balance of bargaining power in workers’ favor will require significant new working-class organization—that is, collective rather than individual action.
The last four decades have been a long winter of declining worker organization and power— plummeting union membership rates, the near- disappearance of large strikes and other forms of worker direct action, and worsening outcomes like wage stagnation and declining job security—in the United States. In recent years, however, we have begun to see signs of a labor revival. In the couple of years before the pandemic, education workers propelled a wave of large strikes and labor victories. In 2018, more workers participated in large-scale strikes (1,000 or more workers each) than in any other year for the previous three decades. These strikes were primarily in the public sector—where conditions are more favorable to union organization—while the vast majority of U.S. workers are employed by private companies. Since the pandemic, however, there have been glimmers of a labor revival in the private sector, including an uptick in strikes and other labor protests (though not on the scale of 2018 and 2019) and of new union organizing activity (including the first U.S. union victories at Amazon and Starbucks, two of the country’s largest and highest-profile private employers). As hopeful as these examples may be, it is early yet and the U.S. labor movement is just beginning to pull itself up from a very low level, like a fighter who has been knocked flat and is beginning to pick themselves up off the floor. According to National Labor Relations Board (NLRB) data for 2021 and the beginning of 2022, union victories in NLRB-conducted representation elections (cases closed January 2021-June 2022), plus voluntary employer recognitions of unions reported to the NLRB (January 2021-March 2022), have established new union-represented bargaining units of less than 100,000 total workers. Though these figures, for various reasons, are not comprehensive, they do give a sense of how far there is to go: For the United States to get back to the national union coverage rate (percentage of workers covered by union contracts) of the year 2000 would require an increase of more than 5 million covered workers. To get back to the union coverage rate of 1980 would require an increase of more than 20 million covered workers.
If the magnitude (so far) of this new labor organization is modest, the stakes are very high. The Covid-19 crisis erupted amidst an existing social crisis, not only in the United States but around the world. Stagnant wages and rising economic insecurity, rising income and wealth inequality, globalization dominated by giant capitalist corporations, rampant “financialization” of economic life, global financial and economic instability, the weakening of labor protections and social “safety nets,” and the political dominance of corporations and wealthy individuals are among the economic factors contributing to social discontent. In some countries, this discontent has given rise to movements and parties aimed at the revival of labor organization, increased regulation of private business, expansion of social safety nets, and equalization of the distribution of income and wealth. (To be sure, far-right, nationalistic, racist, and xenophobic movements have also tapped into such discontent for their own nefarious purposes.) In many societies, belief in the legitimacy of established economic and political institutions has been seriously shaken. In the United States, we can see turmoil raging all around us—on matters of class and labor relations, racial inequality, gender and sexuality, immigration and immigrants’ rights, environmental degradation, political democracy versus authoritarianism, and much more.
Ultimately, the outcomes of this crisis, in the United States and other countries, will not be determined by impersonal economic forces obeying unwavering laws—but by conscious human action. (To quote the famous adage of the 19th-century economist and revolutionary socialist Karl Marx, “people make their own history.”) Crises are the times when people most actively fight out what shapes their societies will take in the future and when the stakes are highest because the greatest changes are possible. There is no guarantee that a crisis of capitalist society will result in breakthroughs for the downtrodden and exploited or will give rise to reforms that make society less unequal or more democratic, let alone end in more fundamental or “revolutionary” changes that replace capitalism with some other system of economic organization. In any social conflict, the wealthy and powerful have obvious built-in advantages, and it would be surprising if they did not prevail most of the time. But this does not mean that their triumph is guaranteed. Even in societies with large hierarchies of wealth and power, economic and political elites are not all-powerful; the oppressed and exploited are not utterly powerless. In every crisis, the outcomes depend on the shifting balance of power between different groups in society, which in turn depends on these groups’ degree of unity, clarity of vision, and capacity for collective action.
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