How COVID-19 may impact employers and employees in the longer term

people in the street wearing medical masks

Social distancing and related restrictions that have been implemented to limit the spread of COVID-19 have transformed economies and societies in short order. In today’s article, Darryl Gobbett, Research Fellow of SACES, identifies some key issues that employers, the self-employed and employees may encounter as the Australian economy emerges from the COVID-19 lockdown.

Social and therefore economic behaviour may change
Various forms of social distancing may remain in place and will evolve depending on expectations and the actual outcomes of how well COVID-19 is suppressed or re-emerges. This includes formal restrictions and informal behaviour in terms of peoples’ willingness to engage in social consumption.  And we should not assume that if COVID-19 is suppressed and vaccines found that life will simply go back to “normal”. Rapid viral evolution combined with global population growth, climate change, global supply chains and continued mass movements of people suggests other pandemics will arise.

So different combinations of working from home and going into the office, face-to-face meetings with clients and suppliers, meetings with fellow workers, engaging in transport, and human interaction in those industries which rely on high degrees of social consumption (e.g. retail, hospitality, healthcare and tourism), will be legislated, regulated, given guidance on, and assumed as best practice.

These are all likely to be very moveable feasts. So we are all going to need to be much more flexible and agile in how we work and interact, not only in the social and technical systems we use but also the ways in which we market, contract, deliver and get remunerated. That will suit some people, businesses and institutions. Others will find this disturbing and difficult.

In fact, these frictions are likely to see new jobs arise in helping others better work and interact at a distance and more safely when having to be in close contact, e.g. in health and aged care and public transport. Workspaces will need to be redesigned to give more personal space while also reflecting that more people will be working remotely. The coffee shop that became a workspace for many pre-COVID-19 will also need to adapt. Personal Protective Equipment (PPE) will need to be redesigned and manufactured so it can be worn comfortably for longer periods at work and perhaps on flights.

The role of the public sector will change
Taxes, regulation and the size of the public sector will each probably increase if, as seems likely, the populace expects federal, state and local governments to be doing more to manage the impacts of this pandemic and be better prepared for the next one.

Public sector debt is likely to continue to grow strongly to very high levels as a result of increased health spending, social welfare, wage subsidies, capital works and other support measures. But we have not yet seen the full impact of social restrictions on reduced wages, profits and superannuation contributions; lower household spending; slashed commercial and residential property turnover; falling new business creation; and lower property values.

Increased regulation is therefore likely to try to reduce the risk of extending this pandemic or subsequent waves while also aiming for better risk management by the public and private sectors of the next. While much of the current restraint on life and work is being done by relying on us to do the right thing, a more prolonged, even if less severe, lockdown is likely to be seen to need more formal regulation. Intrastate and international travel and cargo movement seem likely early candidates. Governments consequently face a challenging and delicate balancing act in terms of implementing regulatory measures to minimize future pandemic risks while not overly burdening consumers and business. The adoption of effective and scalable testing and tracing capability would seem an important component of balancing these tradeoffs.

Shifting the cost of this future risk management to the private sector will be necessary as the public sector seems highly unlikely, in view of the debt load it will be carrying by end 2020, to be able to maintain the current support packages or to replicate them at scale in the next few years.

Risk management will become more prominent
The third big issue is an increased focus on risk management to reduce or offset the possible costs of future pandemics. Past crises such as Y2K bug, the Global Financial Crisis and the recent Royal Commissions into financial services, child abuse, aged care and disability have seen increased requirements on business, organisations and institutions to develop, exhibit and implement better risk management practices at many levels. Some of this has been driven by governments and regulators, some by financiers including the Australian Securities Exchange, some by public opinion.  

The pandemic’s current direct and indirect impacts – across physical and mental healthcare, medicine, social relations, work and unemployment, people movement, culture, industry, business, finance, supply chains – are much more widespread and deeper than likely anything seen since the Spanish flu pandemic of 1918.

This is not because the morbidity or mortality issues are similar but because of the current complexities and deepness of the various linkages, interrelationships, understandings and interdependencies we have built, socially, culturally and economically. Circumstances which we see as normal but when severed or disrupted can have potentially devastating impacts. Imagine how social isolation and working at home would be impacted by the failure of the internet or social platforms. But we have the good fortune of having made major strides in medical technology, healthcare and digital communications infrastructure which allow us to minimize the loss of human life while preserving a majority of economic activity.

So expect an expansion of the ambit of risk management policies and Director signoffs. More questions about supplier, customer and financial diversification and backups, logistics, supply chains, staff healthcare, workplace distancing and remote working and how long the organisation could survive a lockdown.

The importance of adaptability
Like the coronavirus itself, humans and business will do best if they can evolve and adapt to the new reality.

How can businesses, institutions and other organisations adapt in order to survive likely sustained weaker markets, a sustained high tax load and higher costs of regulation and risk management?

These requirements will likely cause tensions. For example, how does just-in-time manufacturing and inventory and logistics management, and the productivity gains they have provided, now fit with managing the risk of international trade disruptions and the importance of having a sovereign capability in critical areas such as PPE and viral tests? How do the productivity benefits of mass production and economies of scale fit with the possibility of a major investment being idled, perhaps at terminal risk to the organisation? The airline industry, car manufacturing and eat-in restaurants are current good examples.

Fundamentally, it will be about increasing the productivity and flexibility of staff and capital. Often through doing more with less; finding and developing new markets, product and services and marketing channels; and being able to better withstand, or innovate to reduce, potential shocks to supply chains and workforces.

In this area, it is doubtful we will now see the type of leadership by government as seen in the 1990s and early 2000s that strongly boosted productivity, living standards and increased the capacity of governments to tax and spend.

Boosting productivity growth and increasing adaptability and sustainability will therefore come down largely to what individuals, businesses, organisations and institutions will do. Getting those issues resolved will require and create new types of jobs and businesses. It is likely this is already occurring so think about where you will fit in this new world.  


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Tagged in Commentary, COVID-19