Will the coronavirus change everything? While that sentiment feels true to the enormity of the crisis, it likely isn’t quite right, as scholars from the Brookings Metropolitan Policy Program have been exploring since the pandemic began. Instead, the COVID-19 crisis seems poised to accelerate or intensify many economic and metropolitan trends that were already underway, with huge implications of their own. Below, scholars weigh in on COVID-19’s long-term impact on businesses, workers, and the nation as a whole.
Contents:
- COVID-19 will transform the world, but changes might accelerate familiar trends
- Innovation and hybridization in food and retail will expand
- Low-wage workers are facing a housing crisis
- Will inequality increase among older Americans?
- Gen Z will affect how cities rebound from the COVID-19 pandemic
- COVID-19 will accelerate structural declines in microbusiness employment
- The country will finally address the digital divide
COVID-19 will transform the world, but changes might accelerate familiar trends
By Mark Muro
Two weeks ago, my group noted that while automation in the workplace has been spreading over the last decade, it will likely surge in the coming years. As firms’ revenues rapidly decline, humans become relatively more expensive. COVID-19 won’t so much change the automation trend as it will amplify it. Young people, people of color, and those with less education will be most vulnerable to further dislocation in jobs such as food service or cashiers as they become automated.
Similarly, reporters wonder whether the trauma of social distancing and the rise of telework will finally empty out the “superstar” cities and lead to a decentralization of the nation’s hypercentralized urban map. And sure, that might happen. However, our work shows that through crisis after crisis, the big tech hubs have continued to increase their share of the nation’s digital services employment. That’s because intense “agglomeration” economies remain so important in tech.
And then there is the matter of Big Tech itself. While it seems natural to assume that virtually every industry will be humbled by COVID-19, it sure seems to me that the big tech titans—Amazon, Facebook, Google, Microsoft, Apple, Netflix, etc.—will emerge from the crisis stronger than ever. These titans captured dominant market shares in the decade following the last recession. Now, I bet the digital rich will get richer, as stay-at-home workers rely on their remote work tools, video calling, e-commerce, and video streaming. And don’t forget that all of these giants are sitting on huge piles of cash. They will be ready to snap up any choice tech or other properties that stumble.
I’m betting that the world that emerges from the crisis will be transformed, yes, but also recognizable—for better or worse.
Innovation and hybridization in food and retail will expand
By Tracy Hadden Loh
Retailers, their landlords, and suppliers were already responding to multiple industry-wide trends before the coronavirus struck, including tariffs, a shift in consumer demand from products to experiences, e-commerce, and the sharing economy. The resulting strains were already motivating these players to innovate or exit. The coronavirus disruption simply accelerates the need to be creative and embrace new models.
A 10-year commercial lease in a single-use building will no longer be standard. Seasonal retailers were already experimenting outside of the big box, including markets and pop-ups in flexible spaces. Office tenants were doing the same through WeWork and other co-working spaces. In addition to new formats and lease terms, profit-sharing leases will become an increasingly important tool to help new businesses get started, survive slowdowns, and provide a return to landlords who invest in their tenants’ success.
Convergence and hybridization will accelerate in food retail, which will return to be a “revitalizing force in urban life.” IKEA was already a furniture showroom, warehouse, and restaurant. High-end grocers were encouraging shoppers to have a beer. Restaurants were increasingly not just dine-in, but fast-casual or mobile food trucks. Whether through app-based delivery or prepared foods from wholesalers such as Costco, Americans will return to eating much of their food prepared outside the home. In 2017, jobs in leisure and hospitality (which includes all bars and restaurants) grew to outnumber jobs in retail trade. The pandemic is a setback, but not a reset.
For commercial real estate and local governments, food retail will only continue to grow in importance. Restaurants, in whatever format, will continue to be a growing share of tenants and sales tax generators as other storefronts are impacted by tariffs and e-commerce oligopolies. And the more Americans eat out, the more proximity to food retail will shape office and residential tenant demand, as well as home sales.
Low-wage workers are facing a housing crisis
By Martha Ross and Jenny Schuetz
In the best of times—say, when unemployment is below 4%—tens of millions of workers still earn barely enough to live on. In an earlier, pre-pandemic analysis, we calculated that more than 50 million workers ages 18 to 64 earn low wages. More than thirty million work full time year-round, with median hourly earnings of $11.23 and annual earnings about $24,000.
Basic costs like housing were already a stretch for these and other workers. More than 75% of low-wage workers are “housing-cost burdened,” meaning they spend more than 30% of their income on rent. The typical low-income renter household spends more than half of their income on rent.
But in the COVID-19 era—with mass layoffs in hospitality, retail, and entertainment—earnings have simply disappeared for millions of workers. Households that previously strained to pay rent will now find it impossible.
Policymakers have already taken note. State and local governments have instituted temporary halts on evictions. The federal government has taken steps to provide homeowners with extra time to pay their mortgages, and the CARES Act provides an eviction moratorium for renters living in federally financed units (an estimated 28% of all units).
But temporary eviction halts do not prevent unpaid rent debts from accruing, and the legislation leaves the needs of tens of millions of renters unaddressed.
We need stronger action—most crucially, more direct financial assistance to households. A one-time payment of $1,200 per adult does not come close to covering housing costs for most families, let alone help them buy food and other supplies. Some households will receive additional assistance through enhanced unemployment insurance benefits or provisions of the Paycheck Protection Program, but those programs have eligibility gaps and time limits that will still leave many short.
The housing affordability crisis predates the current health crisis, and will worsen in the short run due to the federal government’s slow response. People commonly reduce housing costs by “doubling-up” with family or moving into lower-quality housing. Given the thin financial reserves held by renter households, many people will be forced into one of these options. A fourth federal relief package with strong housing and financial assistance provisions can help mitigate the crisis. Renters and homeowners need cash soon to prevent massive increases in housing instability and homelessness.
Will inequality increase among older Americans?
By Annelies Goger and Nicole Bateman
As baby boomers age, how will the pandemic affect older Americans? The Great Recession may offer some lessons. It is likely that older adults will fare better than their younger counterparts overall; however, disparities in income increase with age. Forthcoming work by Martha Ross and Nicole Bateman shows that 40% of workers over age 62 earn low wages, while that number is only 32% for workers in the 50 to 61 age group. There are very different levels of economic security among older adults by race as well.
Predictions of a dramatic “grey tsunami” of retirements generally haven’t come true yet. The share of adults age 65 and over in the employed labor force increased from 3.8% in 2007 to 6.6% in 2019. The Great Recession eroded savings, so many older workers stayed in their job out of necessity. It is possible we will see an acceleration of this trend after the pandemic.
We may see worse labor market outcomes for older workers who lose their jobs. During the peak of the Great Recession, it took unemployed older workers 43 weeks, on average, to find a new job, while workers ages 35 to 44 only took 29 weeks. Those who found a new job received deeper pay cuts than younger workers: Men over age 62 saw an average pay cut of 36%, compared to 1.5% for men ages 25 to 34. Six in 10 older workers also reported experiencing age discrimination in the labor market. These barriers may be particularly acute in metro areas with high shares of older workers (see map).
The pandemic crisis may also disproportionately impact:
- Low-income older adults who do not own their home outright
- Older Americans age 50 to 65 with no health insurance
- Older business owners in industries that were highly impacted in the pandemic
- Black and Latino or Hispanic older Americans
The public policy framework for supporting older workers is limited. One of the key programs is the Senior Community Service Employment Program, which has been funded at levels well below the demand for it. We also need to consider other targeted public policy solutions for older workers to address inequities.
Gen Z will affect how cities rebound from the COVID-19 pandemic
By William H. Frey
One prognostication about the long-term effects of COVID-19 is that cities will not recover from the temporary migration of some urban dwellers to less dense areas to achieve social distancing. The assumption is that as we navigate a recession, such density-driven out-movement will become more permanent, irrespective of the many amenities and agglomeration economies urban centers have to offer.
Yet from purely demographic standpoint, one of the best recent periods for cities and megalopolises was immediately after the 2007 to 2009 Great Recession. Between 2010 and 2011, the nation’s biggest metro areas—New York and Los Angeles—ranked first and fifth in population gains. For the four years thereafter, major metro areas gained migrants from the rest of the country at the same time many cities grew faster than their suburbs.
Why was this happening in a tepidly recovering economy? A good deal was attributable to young adult millennials. Unable to find jobs and housing in large stretches of the country, they found urban centers attractive. Eventually, the economy rebounded, jobs dispersed and many young adults dispersed with them. But large metro areas still prospered even with slower growth, as Brookings’s Metro Monitor 2020 revealed.
What does this mean for the post-COVID-19 period? Much will depend on Gen Z, an educated and racially diverse generation with strong urban roots. They will face challenges, to be sure, that will need to be addressed. But if they follow in the footsteps of millennials during a similarly dim period, they could help to invigorate city growth—especially if opportunities dry up elsewhere. Large places will be attractive to them, eventually if not immediately. And they can be an important demographic force in future city renewal.
COVID-19 will accelerate structural declines in microbusiness employment
By Joseph Parilla and Sifan Liu
Small business is a tough business. In a 2018 Federal Reserve survey, only a slight majority of small businesses were profitable (57%) and just under one-quarter of them were operating at a loss. The landscape is even more perilous for microbusinesses, small businesses with fewer than 10 employees. According to that same survey, microbusinesses with under four employees were only half as likely to add jobs as larger small businesses.
These recent statistics demonstrate how microbusinesses have been on the losing end of long-run structural shifts in the U.S. economy. In 1977, microbusinesses accounted for 66% of business establishments. By 2016, that number had shrunk to 57%. Meanwhile, businesses with more than 250 employees grew from 12% of establishments in 1977 to 20% of establishments in 2016 (Figure).
These trends accelerated during the Great Recession. Nationally, small businesses accounted for 45% of employment, but as the economy shed about 5 million jobs from 2008 to 2009, they accounted for 62% of the net job loss. Between 2008 and 2009, microbusinesses under five years old lost 22% of their jobs, three times the rate of larger small businesses of that same age.
Compared to the Great Recession, the early stages of the COVID-19 economic crisis suggest that job losses will fall even more disproportionately within the small business sector. We estimate that about 2.9 million microbusinesses are in industries at immediate or near-term risk from COVID-19.
How many of those microbusinesses survive will depend on the duration of social distancing measures and the success of countervailing policies. But without a robust policy response to not only mitigate small business damage in the immediate term but also support entrepreneurship more robustly in the recovery, the pandemic will accelerate the structural decline in microbusiness employment.
The country will finally address the digital divide
By Adie Tomer
It’s easy to take broadband for granted. Working-age adults earning higher incomes tend to enjoy broadband everywhere they go, from high-speed connections in their homes to wireless plans on the go. All this connectivity has allowed many of us to transform our daily lives—and it’s all been intensified in this period of social distancing.
While I fully expect offices, restaurants, and schools to fill up again once it’s safe to do so, I’m also confident that society will appreciate the redundancies provided by digital platforms. There’s a sense of security that we can switch on video conferencing, digital blackboards, and on-demand margaritas when we need.
But for millions of Americans without in-home broadband, the consequences of digital disparity have become more apparent over the past few weeks. Broadband subscription rates are far lower among low-earning and less-educated households, including 18 million with no subscriptions at all. These underconnected households face an even larger set of digital barriers than they did two months ago, whether it’s students who cannot attend school online, an adult who cannot telework, or a family who cannot get groceries delivered.
I expect we’ll look back on COVID-19 as a wake-up call that broadband isn’t a luxury—it’s an essential utility.
As policymakers respond to that call, they will aim to fill network gaps through public investment or tighter regulation (as in the electricity sector), and through a new suite of programs to boost subscriptions and distribute devices. We’re already seeing this happen, from internet service providers offering discounts to school districts passing out computers and wireless hotspots.
We can bootstrap interventions for now, but broadband only grows more important as society and the economy continue to digitize. My guess is we’re about to see a great wave of broadband policies—and it can’t come soon enough.
Authors
