I doubt that anyone alive during the COVID pandemic will forget it. COVID caused a restructuring of where people work, affected how much workers are paid, and accelerated the development of machines and technology that could replace humans in the workplace. All three of these elements emerged from something that was unique in our modern economy: a massive labor shortage.
As the economy reopened, the “Great Resignation” emerged. At its peak, over 4 million workers were leaving their jobs each month. With federal help still supporting them, many workers decided to leave their jobs and search for other work. The result was a labor shortage in industries like restaurants, hotels, construction and health care.
How did these industries react to the shortages amid Covid?
They made their jobs more attractive to workers, especially by increasing the pay. For example, in North Carolina between 2019 and 2024, compared to the average job, average hourly wage rates rose three times faster in leisure/hospitality and construction, and two times faster in education/health care and general service jobs. These increases have outpaced price increases (inflation) over the same time period.
The tactic worked. Economic sectors like restaurants, which suffered the worst job shortage, now have more employees than prior to the pandemic, and the same has occurred for other sectors.
Someone could conclude that the pandemic actually had some good results for the labor market, particularly for those at low pay scales. It gave workers some time to reevaluate their current jobs, possibly upgrade their skills, and move to higher-paying employment. At the same time, economic sectors facing a labor shortage were prompted to increase pay, benefiting workers who stayed in those jobs.
Will these changes in the labor market be permanent?
The two forces guiding the future market will be the aging workforce and labor-replacing technology.
With a declining birth rate and longer lifespans, our population is becoming older. For example, the North Carolina population aged 65 and older is projected to increase almost three times faster than the population under age 17 between now and 2050. So unless a surge in migration to North Carolina from other states or nations occurs, workers may be relatively harder to find in the future. This would motivate businesses to improve wages and working conditions to attract workers, solidifying the labor market changes prompted by COVID.
At the same time, businesses facing relatively more expensive labor will be motivated to find ways to reduce labor costs. The major way to do this is to use more labor-saving technology. Interestingly, we are now on the cusp of new labor-saving technology in the form of artificial intelligence (AI). It is certainly plausible that AI’s success could eventually create labor surpluses, which would lower worker pay and make the impacts from COVID temporary.
Hence, as is often the case when trying to predict the future, there is not a clear answer to today’s question of whether COVID permanently changed the labor market. In the anticipated battle between workers and technology, which will win? You decide.
