Economy of the Future
I recently read an article about how an airport in a U.S. city had difficulty finding people to work as janitors to clean up the airport. The job description had a rather long list of requirements, and the pay was minimum wage or a little bit more. Online comments about the article showed that many people thought the long list of requirements to become a janitor was ridiculous, along with the pay, because Covid-19 is still very much with us yet.
This sentiment seems to bleed true in many industries as workers are starting to consider a different measure of importance; themselves, their well-being, and alternative options. Perhaps this trend was a long-time coming and just happened to ramp up and become widespread sooner than expected. In 2020 according to Forbes, 2 million workers joined the freelance economy, raising the percentage of American workers engaged in freelancing full time by 8% to a total of 36%. The freelance sector has grown to generate $1.2 trillion in income annually. Younger generations of workers are also more likely to participate in the freelance economy, with 50% of Gen-Z and 44% of Millennials working freelance. I, for one, jumped ship a few years ago and have found the transition fulfilling, exciting, and challenging.
With the newly added unpredictability of the world, people are searching for security, and the one thing they feel that they know and can count on is themselves. There is also the debate that says that people are unwilling to take lower-paying jobs because of the unemployment payments they are getting from the government. The other side of the argument says it’s because companies are not paying people enough.
Whether it is one way or the other, people are reassessing their work lives. This year, a Pew Research Center survey found that 66 percent of the unemployed had “seriously considered” changing their field of work, a far more significant percentage than during the Great Recession. These new considerations that people are taking into account have an impact on the U.S. economy and the growing economies around the world.
With this sense of change in the air, I thought it would be interesting to look at the economy’s future. So, I reach out to Dr. Tom Vogl, Associate Professor of Economics at the University of California San Diego. Dr. Vogl’s research focuses on Development, Demographics, Health, Human Capital, and the Political Economy. He has published several articles looking at economies in developing countries. His most recent article Intergenerational Associations and the Fertility Transition looks at generational achievement in families and the changing social climate we face.
My Interview with Dr. Vogl
How is the U.S. economy doing?
In some sense, the U.S. economy is doing better than many expected. The International Money Fund (IMF) is projecting something like 6% GDP growth in 2021, a remarkably high GDP growth rate. Of course, there was a considerable contraction last year. So, we are starting from a lower base than usual, but that is pretty good. The unemployment rate was up to 15% at the height of the crisis, and now it is back down to 6%, which is not relatively as low as before, last winter when we were at less than 4% unemployment rate. There is still an unequally distributed gap there. When we were at 15% employment, many furloughed workers were likely to be recalled by their previous employers. As the unemployment rate has fallen, the share of the unemployed who are going to remain unemployed has increased.
Will small businesses continue to be the foundation of the U.S. economy?
The essential workers kept things moving, the healthcare workers and the childcare workers who put themselves at risk. The delivery drivers kept goods moving to people when people needed them. They are the bedrock of the economy.
When I think of fueling the economy, I think of propelling it forward. That makes me think of growth. The longer-term growth tends to come from people coming up with new ideas or new ways of organizing things. In the past couple of decades, a lot of that has come from technology, and I suspect that that will continue to be the case, especially now.
If we think that we may have new pandemics that have similar features to the one we experienced this past year, there will be many new technology issues. Some of them we have met already. We are all videoconferencing and doing podcasts over the internet. A number of them maybe haven’t been perfected yet. Finding the right technologies to fuel a remote lifestyle, not just the work but also the interactions between people, will play an important role.
How did Covid impact the economy?
When everything shut down in March and April, there was a significant disruption in people’s day-to-day lives. You could not go out. Going to the grocery store became a risky endeavor. In general, people could not get together with friends and family. Childcare shut down, and education shut down. That was a big shock. Everybody knew that the unprecedented shock was going to dissipate eventually. So, two things went on. People had to reorganize their lives during the drastic shut down in March and April, which changed the demand for various economic goods and services.
People weren’t going out to get a haircut anymore. You were not going out to restaurants anymore, but you were ordering sweatpants to sit in front of your television and do tasks. The bigger question is, how much of that was going to stick? How quickly were we going to rebound back? Bouncing back has been a little slower than it could have been if this country had been more proactive in controlling the virus early on. It has been happening gradually, especially now that we are vaccinating people.
Is America declining as a global economic power?
The U.S. is still by far the largest economy in the world. There undoubtedly other economies rising, in other parts of the world that are developing economically, China is the most prominent. I’m not sure if the rise of China means that the U.S. will be less critical in world affairs or the global economy, but certainly, the future holds a shared stage for the U. S. rather than being the sole center for the world economy.
Income inequality continues to increase. What will the middle class look like in the future?
Income inequality has been rising in the U.S. since the 1970s, and the middle class has been getting hollowed out. This current recession has not helped that situation. Stock market portfolios have continued to do very well, and people at the top of the income distribution have had much smaller increases in unemployment. In general, the top of the income distribution has not done too poorly over the last year. At the same time, the middle and bottom of the income distribution have had a tough time. These are longer-term trends that proceeded the pandemic. Labor force participation was declining among men, and inequality was rising. If anything, the pandemic makes those trends worse.
Do you think climate change will affect the economy in the future?
There’s substantial evidence that workers and a range of industries become less productive when it is hotter. There’s uncertainty about what will happen to the weather tomorrow, how we prepare for a big flooding event, a big heatwave event, or wildfires. There will be low-lying areas close to the ocean that will be under water, and that will require a lot of reorganization of the economy.
One of the biggest things we can do to help people in developing countries is allow them to move to better opportunities. The people who are living in places are suffering the consequences of climate change. One relatively straightforward way to mitigate those consequences. Right. If you move people.
Focusing a little closer to home here in California, I have a colleague who has been working on a project for the governor to try to help understand how California can cope with the future of climate change. A lot of what California can do to mitigate the future effects of climate change and try to reduce its carbon emissions is to build more housing close to the coast because it has less wildfire risk and requires less air conditioning.
Will the future unemployment rate remain high?
There are some similarities with what happened back in 2008 and 2009, but the big difference is the gender composition of job losses. This is the first recession in modern U.S. history that has hit women more than men. Job losses were concentrated in service sectors that would bias the job losses more towards women than in past recessions when manufacturing or construction workers lost work.
Then on top of that, families were burdened by a whole lot more childcare responsibilities which, in our society, the way it’s structured today, tends to fall on women more than on men. So, this recession has burdened women much more than men. Many women who stopped working to take care of their kids will stay out of the labor force for the rest of their potential working lives. How many of them will make their way back to the workforce once the school and childcare infrastructure returns to how it was before.
Since people are staying home more, what will be the main drivers of personal spending?
When things started shutting down, people started staying home from work, and back in the middle of last year, expenditures on food and alcohol went up persistently. And, of course, people spend more on online shopping. People were spending less on services, haircuts, travel, hotels, gasoline.
As more and more people are vaccinated, and as worries about infection and contributing to contagion go away, people will start going to the hairdresser and traveling again. The changing purchasing habits for types of clothing, cooking at home, eating at home might stick, and the decline in retail shop shopping might be a permanent boost in the online shopping sector.
Do you think the work from the home business model will continue and become standard for most office jobs?
I think there is a lot of heterogeneity in whether work from home, works for people. There is some nice evidence from a travel agency in China. Pre pandemic, the agency allowed some workers to work from home. They did it in a way that emulated the randomized controlled trials system. Some researchers could compare the workers who signed up for work from home; a random subset of them could work from home, and the others could not. Productivity went up in the workers who got to work from home. Productivity went up when some of those workers were allowed to return to the office if they wanted to.
On average, they got more productive, and for something like an online travel agency, you can measure the activity by counting how many calls somebody went through a day.
When they were allowed to return to the office, and the others who wanted to keep working at home were left to keep working from home, then you saw an even more considerable boost and productivity. Because some people tried it and realize this isn’t working for me, I do much better in the office. Some people tried it and realized that it worked well for them. And so they do much better at home. Overall, the company benefited from offering that flexibility to people. There is a broader lesson here for companies in a post-pandemic world.
What advice would you give to the worker of the future?
The great recession was bigger than any previous recession or anything since the great depression. And this one crisis has undoubtedly been big. The frequency of these events has not sped up. The period between the great recession and the current recession was the longest expansion in U.S. history. So, it does not seem like these business cycles are happening faster than they happened before. Whether the volatility of these crises is going to continue to increase, that is unknown.
How should young people think about preparing themselves? I believe the advice that most academic congresses would give is similar to what they would tell young people at any point in the last few decades. Invest in diverse skills and general skills that can apply to several industries or several technologies.
Being quick to learn new tools and new ideas will help a lot in this future labor market. Suppose you are working in the travel industry and got hammered this last year badly, have a broad set of skills, and apply them in a different part of the economy. That’s one of the critical ways that economists think about what education does. It gives you the flexibility to keep up with technological change and adapt to these crises.
About Dr. Tom Vogl
Dr. Tom Vogl is an Associate Professor of Economics at the University of California San Diego. Dr. Vogl’s research focuses on development, demography, health, human capital, and the political economy. His current courses that he teaches at the university focus on applied econometrics and data analysis and macroeconomics of development. He has published various articles looking at economies in developing countries. His most recent article Intergenerational Associations and the Fertility Transition looks at generational achievement in families and the changing social climate we face.
Dr. Vogl received his undergrad degree from Princeton in economics and his masters and doctorate degrees from Harvard. His love for economics grew from conversations around the family dinner table. He enjoys applying his knowledge to tackle the problems in developing countries’ economies and advocating for the fight against climate change.
To find out more about Dr. Vogl go to: http://www.tomvogl.com/