An Economic Analysis (Prediction) of Covid-19 and the Elimination of Millions of Jobs.
I have talked about this topic a lot. I know people are going through a lot right now. Out of work. No money saved. In need of food. People are freaking out, and rightfully so but, you got to keep a cool head, especially if you have others that depend on you for their survival.
Amidst the chaos, try to find some time to work on -- you. Work on your mental health, and work on your KSAs (Knowledge, Skills, and Abilities). Always be learning new things. I don't know about you, but I am taking FULL advantage of all the new (and old) free resources such as LinkedIn Learning, edX, VarsityTutors, and many more that already existed, or have popped up due to this pandemic, and you should too.
It is more important now than ever.
Because I believe hundreds of thousands of American jobs will never return when this pandemic is over.
There are three reasons why jobs will go away forever. Unfortunately, but not unexpectedly, the current environment we are living in is ripe for three things:
The large-scale adoption and implementation of automation.
Corporate restructuring and turnaround.
I've posted links on my LinkedIn page to resources over the last few weeks to sites with free classes, and there are so many other websites, and companies, out there offering free educational courses. Use this time to study a new skill. Take a course. Update your resume. Start a new business. There's no time like the present. Work on you.
Yes, you should always be doing this but, especially now.
The best time to plant a tree was 20 years ago, the second best time is now.
Look around. A highly disproportionate amount of the people that are out of a job right now are hourly and/or minimum wage workers in the service industry, many without college degrees. I'm not saying having a college degree could have secured any of these jobs. I'm not saying you should get a college degree, because there's also millions of people with college degrees out of work right now too.
I'm simply pointing out that many of the people who are still working right now are the ones who hold salaried jobs and/or college degrees and working from home.
Maybe you don't want to go to college. Fine. Maybe you can't afford college. Okay. Then at least go online and learn for free about how to work on your soft skills to make yourself more attractive to employers (or your current employer). There are way too many free resources and low cost options out there. [Khan Academy is a great one.] Work on your reading and writing. Work on interpersonal communication skills. Work on critical thinking. Work on anything you can to help put yourself in a more favorable position with your employer.
Learning new skills is important right now because...
...there are more people out of work at this moment, than there will be jobs to return to; And not by a small margin.
The scale is heavily outweighed, and will remain as such for some time. Guess what! To those who already hold a college degree, and are still working right now...you too should be thinking about this.
Why? Because right now there are hundreds of thousands of people taking advantage of this time to learn new skills, so they can get [better] jobs when this pandemic is over. Which means, more competition for fewer jobs.
This isn't some wild theory I conjured up myself. It's well researched. Enrollment in higher education increases during recessions. Stanford economist Caroline Hoxby said,
One benefit of the last recession was that students were more likely to enroll in college – despite rising costs. In fact, college-going has increased in every recession since the 1960s
Think about it. Have you been seeing an influx of ads everywhere for educational programs and colleges? It is not a coincidence. They know what's coming. Those ads everywhere are by design. Education is one of the oldest institutions in the world. They know what they are doing. They have seen this cycle plenty of times.
The recession was on our doorstep before covid-19 arrived. Major job losses were coming, just perhaps not on the scale we are currently witnessing. S&P Global recently released a statement:
The US economy, the world's largest, is either in the process of entering a recession, or that it's already entered one.
I hope I am wrong about this. I really do. I hope everything returns to normal, and the economy becomes even more prosperous than it was. While we will definitely see a spike in hiring when this is over, much of that will likely be temporary jobs to get the economy rolling again.
What I'm saying is, start planning now for months and years ahead. I don't say this to scare anyone, to come off as fatalistic, or to be negative. There is something called the business cycle. There has been speculation in the business and financial industries about which phase we were in, or approaching, at the turn of the new year. All good things come to an end, but 'when' is always the question, and as we all know, you can't time the markets.
The question now is whether this is a short-term disruption or if it will lead to a lasting downshift in the global business cycle.
Here's a graph from the Corporate Finance Institute showing what the business cycle looks like:
The debate around this has been to determine whether we are still in expansion phase or approaching the peak, or in the middle of the peak, or at the tail end of it....and now because of coronavirus, we may never know where we were. Covid-19 changed everything.
No one actually knows where we are as of the writing of this article.
The crash was coming with or without the coronavirus pandemic...It started from record highs, historic leverage, and the most fundamentally overvalued composite of multiples ever, higher than 1929 and 2000.
While everyone is at home, companies are working very hard behind the scenes to figure out how to bounce back from this. The business factors I mentioned are going to become prominent topics of discussion among leaders in many organizations over the next few weeks. We are already seeing companies offering early retirement to employees to try and ease the damage. Companies large and small will be looking for ways to cut costs.
Employees just happen to always be in the top few of that list, and thanks to modern technology, it's easier than ever to replace jobs and job tasks.
Adoption and Implementation of Automation
With all of these people working from home, companies will now, more than they already were, start seeing the value of automation. Automation/AI will replace jobs. We already knew that was going to happen. It has already been happening. Last year, I wrote about the projection of automation/AI replacing 40% of jobs within the next 10 years. Now, because of coronavirus, that is likely guaranteed to happen, and in much less time. I hope I am wrong about this too but, the demand for AI/Automation will grow more rapidly because businesses will want to ensure they never see the losses they are seeing right now, ever again. Right now, most companies are trying to figure out how to keep people on the payroll during this pandemic, however, they are also trying to figure out how they can get rid of expenses and/or employees as well.
Automation doesn't get ill during a pandemic. Automation allows for the doors to remain open. Automation works 24/7. Automation doesn't require benefits or 401Ks. Automation doesn't call out sick. There's no doubt about it -- automation reduces expenditures, increases productivity, and maybe, even adds a sense of security in times of crisis.
According to Brookings Institution,
Roughly 36 million Americans hold jobs with “high exposure” to automation — meaning at least 70 percent of their tasks could soon be performed by machines using current technology. Among those most likely to be affected are cooks, waiters and others in food services; short-haul truck drivers; and clerical office workers.
McKinsey&Company (McKinsey Global Institute) did an in-depth study on this. You can read the report here. There is no lack of speculation about this subject. It may not be a robot apocalypse like in the movie The Terminator but, it will be detrimental to the workforce.
And it's not just the service worker industry that will be affected.
It won’t just be blue-collar jobs operating factory machinery, either. Any career with repetitive tasks is ripe for automation. Sound familiar? Unfortunately, many front-line IT jobs fit this description. As bots hit the front lines of IT, it will be increasingly hard to justify spend on large IT support headcount.
Meanwhile, the folks over at Fortune Magazine put out an article written by David Meyer, and really, the title itself says it all...
"Robots May Steal As Many As 800 Million Jobs in the Next 13 Years"
I could go on and on about this topic, and provide link after link to the hundred and thousands of articles and stories written about the automation/AI takeover but, I think you get it.
Nearly all of the research on this concurs; it's going to happen.
The Economist did a study showing the following graph of which jobs are most at risk. Most of the people in jobs on this list have lost their job due to the virus, and are filing for unemployment at this very moment.
Finally, in this The Guardian article from 2017, author Arwa Mahdawi, writes:
In other words, the jobs themselves won’t entirely vanish; rather, they will be redefined
Which leads me to my final topic....
Corporate Restructuring and Turnaround Services
Pretty much all the top consulting firms offer this type of service. The "Big 4", and so many others are probably gearing up right now, as we all sit at home socially distancing from society. They are aligning their teams to prepare for the wave of calls they will get, or are getting. I wouldn't be surprised if their business development, and sales teams, haven't already been on the phones/emails over the last week. You will likely start seeing ads for them soon. (Pretty sure I saw a BDO commercial the other day.)
"Who has bandwidth?" - Consulting firms everywhere
This is their moment. These are the people companies call to help them figure out how to best navigate the other two items on my list above, and much more. What does this mean for you, and your job? Well, most of the companies who hire these restructuring professionals (let's call them "CRT" Specialists for simplicity) are often the various retailer establishments of the economy...all of whom are in trouble right now.
Here's what a CRT Specialist does:
Bankruptcy accounting and compliance
Lender/creditor advisory services
Develops liquidity forecasts
Improves cash flow management
Obtains additional financing
Guides complex debt restructuring
So, what causes a company to seek these services? Any number of things but, here's a good short explanation from Business Jargons,
"The need for a corporate restructuring arises because of the change in company’s ownership structure due to a merger or takeover, adverse economic conditions, adverse changes in business such as bankruptcy or buyouts, over employed personnel, lack of integration between the divisions, etc."
Any, and possibly all, of those services will be a major focus of discussion next week for hundreds of thousands of businesses. Companies are scrambling right now, large and small, and if they were thinking about making any changes before coronavirus, the fallout has now driven them to take action. It's the perfect time for a businesses to get their houses in order. For many of these businesses, the recommendation will be to dissolve, divest, merge, layoff, consolidate, rearrange, etc. That's where the jobs are affected.
How confident are you that you will keep your job when they are looking to get rid of people? Are you marketable? Have you positioned yourself to be indispensable? If not, start now. Jobs are going to disappear for all three of these reasons. You may not lose your job to automation, but maybe you will due to restructuring. You may not lose your job to restructuring, but maybe you will due to the recession. Maybe you lose your job due to all three. I don't know. I just know that up until February, none of the three things were as threatening to jobs as they are right now.
Yes, these three things are always a threat to jobs but, we've gone from green to yellow to orange to red in a matter of a few weeks. That's not a normal, stable, sustainable climate.
It's not all doom and gloom believe it or not. I am confident that many jobs will return, many people will have capitalized on being home and invested in self-improvement, many people will return to life with a new positive outlook. I know there will be new jobs created, people will start their own businesses, and we will eventually recover. It will take work. We will have to work to recover. I am not going to be naive about it though. Not all the jobs will come back. It's on us to be realistic about all possibilities, and to prepare for such dire scenarios. Millions of dollars have vanished from the economy (stock market), and millions of jobs have (and will remain) vanished as well. Hopefully -- we will not also have to lose millions of lives.
This covid-19 pandemic is horrible. As horrible as it is, we haven't seen the worst of it as of this writing. The infections will increase. The jobs will continue to disappear. Families will struggle to pay the bills. As horrible as this pandemic is, it doesn't guarantee your job will be there when it's over. Companies are not obligated to keep employees. Should they? Yes. In a perfect world, everyone who lost their job, would return to it. We are not in a perfect world. We live in a capitalist society, and companies are going to do what they have to for survival...many will likely go out of business.
There's a glimmer of hope though -- some of the most well known companies were founded during recessions. Check out these 13 Massive Companies That Started During a Recession by Kelly Bertog on Medium.
"Learning is the only sustainable source of competitive advantage." - Karl Hellman, Associate Professor
I feel very fortunate right now to still have a job, and be working from home. I have been jobless in the past, and it sucked, but it wasn't during a global pandemic. I can only imagine what people are going through right now, with unemployment claims, small children, and wondering where their next paycheck will come from.
I hope I am wrong about all this recession, automation, and restructuring. Some say "Hope is not a strategy" -- while others say -- "Hope is the only strategy".
Hope for the best, plan for the worst.
Hang in there people. Stay strong. Reach out to others if you need help. Don't be too proud to accept assistance. Use this time wisely. Prepare for your future. Learn something new. Most importantly, take care of your mental health.
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