Barron\'s - April 6 2020

34 BARRON’S April 6, 2020

THE ECONOMY

In January,janitors and grocery-store workers

earned $14 an hour on average,compared with about

$24 an hour for the average private-sector worker.

How the Job Market

Will Look Postcrisis

W

ho would

have

guessed that

the hottest

commodities

of 2020

would be

hand sanitizer and disinfectant wipes?

Not American manufacturers. Out-

put of soaps, cleaning compounds,

and toilet preparations was 24% lower

at the beginning of this year than in

the middle of 2007—and now supply

has struggled to rise in line with soar-

ing demand driven by the coronavirus

pandemic.

No business was prepared, which

is why the U.S. economy is simultane-

ously suffering from acute shortages

of essential goods and extreme overca-

pacity of everything from restaurant

tables to airplane seats.

The question is whether this is a

temporary phenomenon caused by a

once-in-a-century health crisis or the

beginning of a sustained shift in how

the market allocates resources. If

Covid-19 is sufficiently deadly—and the

federal government’s current best-case

scenario is that more than 100,000

Americans will die—fears of future

pandemics could permanently alter the

business landscape and the livelihoods

of tens of millions of Americans.

Just as few Americans were con-

cerned about infectious disease before

this year, many will find it hard to

forget the importance of hand-wash-

ing or the perils of being around peo-

ple who could be carrying a deadly

disease. Any activity that involves

crowds and in-person interaction

could be in trouble, while occupations

that help Americans stay clean and

avoid leaving the house could boom.

Let’s estimate that nearly 25 million

Americans work in jobs that could be

negatively affected. That includes 11.3

million Americans working at physical

retailers other than grocery stores and

pharmacies, 5.6 million who work at

full-service restaurants, 3.3 million

working in travel, and 2.5 million in

arts and entertainment. Physical retail-

ers were already in secular decline

before the outbreak, but restaurants,

arts and entertainment, and travel jobs

had all been growing faster than the

broader economy. Even if those indus-

tries emerge from the downturn with-

out suffering long-term damage, they

may not add jobs at the same pace as

the rest of the economy in the future.

The good news is that there could be

plenty of places for many of those (low-

paid) workers to go. There are currently

about 13 million Americans working in

industries likely to benefit from the

current disruption. That includes four

million who work in goods transporta-

tion, warehousing, and delivery; 3.1

million who work at food and beverage

stores; 1.1 million who work as janitors;

and one million who research, develop,

and manufacture medicines and medi-

cal equipment.

Some of these sectors were experi-

encing rapid growth even before the

current crisis. Warehouse employ-

ment nearly doubled between the be-

ginning of 2007 and the start of this

year, while biotech R&D jobs have

increased by 70%. Courier and deliv-

ery-service employment was already

up about 50% since 2007 by the start

of this year, and likely has grown sub-

stantially since then, thanks to the

renaissance of grocery delivery.

Other professions that now seem

essential were growing more slowly

than overall employment, if they were

growing at all. These include janitors,

wholesalers of essential goods, gro-

cery-store workers, and the makers of

medicines and cleaning supplies. One

consequence of that slow growth in

employment is that U.S. production of

essential goods has been either flat or

falling since 2007. Imports filled the

gap, but those have turned out to be

unavailable when needed most.

Avoiding future shortages and

maintaining sanitary living and work-

ing spaces will require many more peo-

ple to enter these lines of work, which

probably means raising wages signifi-

cantly. Several grocery-store chains

have already offered pay bumps to keep

people working in jobs that have sud-

denly become far more hazardous, but

they may need to do more. In January,

janitors and grocery-store workers

earned just $14 an hour on average,

compared to about $24 an hour for the

average private-sector employee.

Perhaps the most surprising poten-

tial area of future U.S. job growth is in

textiles and apparel. Face masks and

medical gowns are among the many

essential goods currently in short sup-

ply due to the combination of soaring

global demand and export controls

imposed by the major producers, all of

which are located abroad. America

used to possess the manufacturing

capacity to create its own masks and

gowns, but that largely vanished in

the 2000s. In the 1990s, nearly two

million Americans worked in the in-

dustry, compared to about 300,000

today. To the extent that new masks

and gowns become available, it will be

largely thanks to companies such as

Brooks Brothers that maintained fac-

tories on U.S. soil and are now focused

on producing protective equipment for

medical professionals.

Unfortunately, the transition from

the pre-coronavirus economy to the

post-pandemic world looks like it will

be unnecessarily painful. Nearly 10

million Americans have filed initial

claims for unemployment insurance in

just the past two weeks, as layoffs have

spiked to unprecedented levels. The

number of Americans receiving contin-

ued unemployment benefits has also

jumped rapidly, which means those job

losses aren’t being offset by increased

hiring elsewhere. According to Jed

Kolko, chief economist at Indeed, the

number of online job postings in the

U.S. at the end of March was 15% below

its trend level, and will likely fall fur-

ther. Even the demand for medical tech-

nicians was depressed, due to the col-

lapsing economy.

That suggests that the short-term

priority of policy makers should be

stabilizing incomes and preserving

otherwise viable businesses. Workers

will have time to adjust to the new real-

ity once the health crisis has passed.B

By Matthew C. Klein

Unprepared for Trouble

Today’s shortages of essential medical equipment and cleaning supplies can be blamed

on falling or stagnant production since before the Great Recession.

Sources: Federal Reserve Board; Barron’s calculations January 2007=100

Industrial Production Indices

Soaps & toilet

preparations

Pharmaceuticals

& medicine

Medical

equipment

& supplies

2007 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

70

80

90

100

110