Tuesday, 2 June 2020
COVID-19: The new economics of our daily lives
Some economic implications of moving to a new normal
How will the COVID-19 international public health crisis affect our economic lives? A lot depends on how we think not just of the dynamics of the economy as it is formally understood but on how our lives revolve around our economic roles. In particular, what has changed economically through the crisis that would not have happened and cannot be undone? What do those changes mean?
An alphabet soup of predictions has been put forward about the economic impacts of the COVID-19 crisis. At the start, there were firm statements about a single dip, V-shaped short recession; then there were admissions that a quick restart after a short pause might arise, the so-called W-shaped downturn; and of late, seasoned commentators have spoken about a possible L-shaped slump that reflected a new lower level of activity in the economy that never recovered from the initial effects of lockdown.
Hibernation and scarring
Much hangs on the scarring effects of people suddenly being out of jobs and unable to recover those same jobs quickly. The narrative from the Federal Government has been about hibernation – the idea that everything and everyone that is not core to the task of combatting infection can sit it out. With the exception of a grocery and booze run, people can stay at home in the short-term and manage without.
The state stepping in to provide workers an income is unusual. But – despite those critics who fear this level of intervention will persist beyond the short term – it is realistic, since the last thing that is needed following the pandemic is for households to default on a massive scale. That would threaten a credit and solvency crisis on top of the existing health one.
But if the hibernation goes on beyond a month or two, the odds of resumption as before start to slip dramatically. Each working day that remains stagnant erodes former workers’ skills, confidence, effectiveness and capacity to keep up with the daily and weekly changes in job tasks and responsibilities. Several studies point to those who graduate during a major recession going on to earn less over the next five years or longer. Former coal miners are ill-equipped to manage largely automated mines; white-collar office workers stumble as their IT-driven systems update and appear unrecognisable.
A large part of why workers need to be present in the physical workplace has to do their own identity, deriving meaning, status and friendships. Working remotely has other attractions but they are not these. The relationship to presenteeism in the workplace is more complicated. But it is clear workers’ mindsets and behaviour are best understood through unravelling workplace cultures, and a crucial part of that is that workers mould themselves around their peers. We continue to be social animals in the world of work, so when work in the workplace is taken away, those instincts are hard to recreate synthetically.
In April, 859,000 workers joined the United Kingdom’s dole queue; in the United States, official figures point to a colossal 20.5 million job losses in the same month; and in Australia 594,000 additional jobless numbers were recorded. Remembering that these are beyond those workers put on ice using public funds, it is hard to believe all these workers will not be able to go back to the jobs they held until recently.
Rules versus judgements versus nudges
There is a quirk in the arrangements put in place. On one hand, governments have taken the lead in protecting us using stringent rules-based regimes that allow minimal discretion for individuals in their family household environments. This contrasts with the emphasis on fewer direct rules and greater reliance on judgement and common sense in the workplace as lockdowns have begun to be eased.
Besides this lack of consistency, it means workers will have to adjust quickly to the measures to promote safety. This in turn implies there will be behavioural opportunities to pursue both safety and productivity. For example, UWA research reported in this edition suggests that while just 30 per cent of phone users have downloaded the C-19 tracing app, they expect that twice that proportion will do so. Their estimate helpfully matches the hope of efficacy in the government’s own thinking.
But what if users were primed to already believe that the ‘real’ figure was close enough to 60 per cent that their own actions might make a difference? This can be achieved by understanding motivations and concerns of different segments of the population and targeted communications to carefully reset people’s reference point – for example, by prominently citing a group that users identify with in order to create a peer effect. In the UK improving personal tax compliance among doctors rose markedly simply by reminding them that others doctors had already complied.
Restarting or resetting
Elsewhere, the economy will have moved on in lots of ways that are not susceptible to being reversed. For example, a large pool of professional COVID-19 testers and trackers will need to be recruited to carry out routine preventative public health duties on a scale that will affect the labour market. This is not a new line of work since public health agencies have been doing this in relation to diseases such as measles and hepatitis – but suddenly this new, mass lethal infection will require a new small army to chase it down.
Releasing retirement savings from super funds has been happening on a substantial scale during the crisis. These nest eggs can be rebuilt in theory and, although the option to use this cushion already existed and it has been pushed heavily by the Federal Government in response to the pandemic, the trickier question will be whether retirements in the future will go ahead as planned and as well funded, as if the crisis had never happened. It would appear unlikely, which is the reason why super funds are made hard to unlock in the first place.
Finally, the COVID-19 crisis has undoubtedly set off a blame game in international affairs. The desire to place China in the dock has been abrupt and bluntly stated. But the economic impact has accentuated already-ropey trade relations between western nations and China, and Australia has seen the first round of these with stinging tariffs on its barley exports.
The trade relationship is edging in the direction of a new cold-war category that was previously implicit. In Australia’s case, given the heavy emphasis on an export-led recovery, this relationship more than any other factor will shape the letter that comes to describe the country’s economic upturn if there is to be one.
- UWA Public Policy Institute