The pandemic threw up in the air all the cards we thought we knew and had been playing concerning economics, business, politics, and health. They’re still in the process of floating down to the card table.
Like all societal crises, the pandemic resulted in societal change, but probably at no time in recent history has change like this happened so fast and had such wide-ranging ramifications. The impacts of both world wars, 1960’s counterculture movements, and the digital revolution, to name a few, were all dramatic and far-reaching, but they all took place over extended periods, and so changes resulting from these crises eased their way into our lives. The impacts from the pandemic are much more sudden, and businesses bear the brunt of many of these.
The most painful impact for many employers right now is a recruitment problem, evidenced by their extreme difficulty in getting to full staffing levels. There’s a perfect storm of obvious reasons for this. Parents have been feeling the effects of school closures and the need to provide childcare; former employees on government support are less motivated by the financial attractions of a job; workers in public-facing occupations have reconsidered if they want to be that exposed or, if in other occupations, if they really want that specific job. Other workers have removed themselves from the workforce, or in the face of extended unemployment, have decided to start businesses, or have gone back to school for re-training.
To counter these barriers, some employers have raised salaries, chipped in on childcare costs, or widened their recruitment nets. Others are thinking about different work schedules or switching from less attractive part-time offerings to full-time employment. All of these options raise costs for employers, costs that are likely to become part and parcel of the “new employment” situation.
In areas of how work is accomplished, touch or “tap” screens have become ubiquitous, partitions and disinfecting are everywhere, social distancing is widely prescribed, albeit often disregarded, and providing services in person is up for grabs, with remote work becoming a real option in many situations. Add to these changes, increased digital sales, takeout service, and delivery to consumers. The cost ramifications of all of these are somewhat balanced, at least in the aggregate. There are indeed increased expenses in all these protective actions and equipment for most employers, but some may be able to balance expenses with cost savings on their physical premises as these become more or less irrelevant. However, no employer lives in the aggregate, they live in specific situations, and the many whose businesses don’t lend themselves to remote work bear the unmitigated burden of these extra costs.
Constricted supply chains and the increased cost of goods are other issues. It turns out you just can’t turn off the switch on many basic supply industries and then turn it back on again come recovery. Turning those industrial battleships around takes time, but in the meantime, supply shortages have raised costs on pretty much everything, although there are signs that some of these costs are coming down as capacity increases. These increased costs are borne by employers, and the “lucky” ones are those who can pass them on to consumers, with consumers being not so lucky.
Politically, our basic understanding of the role of government has undergone a radical change, with even some of the most die-hard, limited government adherents acknowledging the importance of government economic assistance. And the volume of that has been enormous, with $5.2 trillion of government assistance in one form or another having been injected into the economy over the past year and a half. To get a sense of that number, a recent eye-popping report in the Washington Post notes that at that same cost the Feds could have bought every one of the 7.6 million homes sold in the US between February 2020 and May 2021, and done that twice, “and still have a bit left over to upgrade the furniture in the den.”
Spurred by government funding and the burst of pent-up consumer demand the Congressional Budget Office projects a whopping 7.4% increase in GDP in 2021, and 3.1% in 2022, leading to the strongest two-year GDP run in 37 years. GDP increases dwindle to a little over 1% in both 2023 and 2024, once pent-up demand is satisfied and government funding runs out, leaving the possibility of a hard landing from the heights of prosperity.
But the biggest impact of our recent experience may be the uncomfortable truth laid bare after COVID: that despite all of our technological know-how and advancements as a society, we still live in a natural world with all the vulnerability and interconnections that entails. It’s a sobering thought and it behooves us to pay attention and prepare as we contemplate a changing environment.
Dennis Boyd is director of the West Hawaii Small Business Development Center. The Hawaii SBDC Network is funded in part through Cooperative Agreement No. SBAHQ-20-B-0037 with the U.S. Small Business Administration and the University of Hawaii at Hilo. All opinions, conclusions or recommendations expressed are those of the author and do not necessarily reflect the views of the SBA.
