Unemployment matters more than you think

The immediate risk for the U.S. economy is that a chunk of the population, often the youngest and the least qualified (those working in retail, hospitality etc.), falls into mass unemployment, hence further accentuating the pre-existing and hot inequality issue.

It is likely that the crisis will result in sustainable incentives to automatize and this new wave of automation, whose speed is still uncertain, could attack this time the whole skill distribution and also hurt high-skilled workers. 

One obvious consequence of the pandemic is that it will serve as accelerator of change for companies. In the 1990s, the arrival of computers in business life caused labor market polarization. Workers either skilled up or had no other choice but to take low skilled jobs in the service economy. Those jobs are now at risk in COVID-19 times but no one knows for sure what might happen to white-collar workers. It is likely that the crisis will result in sustainable incentives to automatize and this new wave of automation, whose speed is still uncertain, could attack this time the whole skill distribution and also hurt high-skilled workers. Automation could thus keep unemployment much higher than in previous crisis, potentially for decades if governments do not manage to address this issue.

In fact, in these unusual circumstances, governments, in the U.S. but also elsewhere, are facing an almost insoluble problem. The first solution, which has been favored by most DM governments, is to extend as long as necessary furlough scheme (especially via the PUA in the U.S.) in order to avoid a massive share of workers to fall into poverty. But it has a cost for the economy. As rightly said by BoE’s chief economist Andy Haldane, “keeping all those jobs on life support is in some ways prolonging the inevitable in a way that probably does not help either the individual or the business”. We are slowly falling into the zombie economy trap that will cause low productivity and low potential growth for the years to come. The second solution is to shift the policy focus from job protection at all cost to job creation in new emerging sectors (such as the green and the circular economies). But even with the best vocational training policy possible, history and experience prove that it is rare the destruction of existing low-skilled jobs and newly automated jobs due to a shift in the structure of the economy will result in the creation of at least as many high-quality and protected jobs. Said differently, an undefined share of the population will be permanently or semi-permanently out of the labor market, mostly due to inadequate competence, and will need to be put on life support by the state forever. This confirms the need to seriously rethink about policies that were once considered as utopian, such as UBI.