Pandemic Changes Could Increase The Likelihood Of A K-Shaped Recovery

Retirement, Income, Tax & Estate Planning.

Pandemic Changes Could Increase The Likelihood Of A K-Shaped Recovery

November 19, 2020 Newsletter 0

COVID-19 has so far managed to shake this country to its very core. In our response to it, we have had to confront longstanding issues that could prove pivotal in the coming years. How we treat our sick, how we work, how we value different professions and those employed in them, how we care for those who cannot work, and how we judge the validity of science are all questions we’ve had to confront as a country. And for a brief period of time, we got a glimpse at a future way of life… we just didn’t know it then. Or we didn’t like what we saw.

As we start to measure our recovery from COVID-19’s impact on the markets, there is a growing chance that we could see what economists are calling a “K-shaped” economic recovery—a recovery split in two directions. The professionals who never left work, or who are able to and are returning to work, are recovering in an upward direction. The low-skill, low-wage, service sector workers, on the other hand, are not recovering and, instead, continue to fall.

Why?

  • Many low-skill, better-paying jobs have been sent south of the border or overseas in the past 40 years.
  • Of the remaining low-skill jobs in the U.S., the majority are low-paying and in the service sector.
  • Most higher-paying jobs in the U.S. require a college degree, if not more.
  • The cost of higher education continues to rise, and there’s no guarantee of better employment with a degree.
  • Many of the service-sector jobs have disappeared as a result of COVID-related shutdowns. For instance, more than 73,000 bars, restaurants, and other service-oriented businesses have closed permanently since March; a number that continues to climb. As more businesses become comfortable with working from home, commercial business districts—the office buildings and the dry cleaners, restaurants, and shops that catered to their occupants—may never return to what they were.
  • The increased reliance on, and recent surge of, automation technologies further threatens the remaining low-skill service sector jobs.

Since 1987, workers whose labor is most easily replaced by machines—assembly lines, meatpacking plants, etc.—have lost their jobs faster than anyone else in the U.S. economy. In the past 10 years, the economy has slowed the creation of jobs for low-skilled, low-wage workers and incentivized automation. In 1987, the effective tax rate on business equipment was just under 15%, which was just about 10 points lower than payroll taxes. Since then, payroll taxes have climbed just above 25%, while equipment taxes are now 5%.

With the COVID stimulus packages, Americans got a startling look at a not-so-distant future: workers who weren’t employed simply because there were no jobs available for them. We also got a brief glimpse at Universal Basic Income concepts and living wages, which some have said led to the rush in businesses reopening. Business leaders didn’t want the concepts to become comfortably familiar in the minds of the average American.

As we head into 2021 with glimmers of hope in regards to the treatment and prevention of COVID-19, we still have no certain future of what the American economy and workforce will look like. What will the future hold?