How the COVID pandemic changed the U.S. economy? Interview with a chief economic advisor at Allianz Mohamed El-Erian.

Information verified correct on June 10th, 2021

What is the workplace look like once the workforce is fully vaccinated?

It’s going to look different in the sense there will be much more hybrid work. There will be people working in offices, and they’ll be people working at home. It is going to be a much more fluid population than it was before and is going to evolve.

I think a lot of people are going to discover that hybrid workplaces are not that easy to run, and we’re going to have lots of changes in the way work is done. On the willingness side, some people will want to have more of a hybrid role if not working at home. And then companies also realize that they can cut certain costs. So I think these two issues are going to come together, and we’re not going to look exactly like we looked like before the pandemic hit.

Which are the next wave of companies that are poised to succeed in a post-pandemic world?

It is often said that we inadvertently pressed the fast-forward button on living in virtual space. There was a massive migration from physical to virtual. Some of it will be reversed, but most of it will not. But we don’t have the infrastructure that allows us to live well in virtual space yet. For example, who would have thought Zoom would be? But even Zoom now is starting to face pressure, so we’re going to see a whole host of new industries involved.

That’s one issue. The second one is going to be data management. We are producing so much data in virtual space that it’s not going to be something where we’re going to leave the big platforms to have this data. More and more small companies are going to come in and give choices to providers of data. Look at everything associated with virtual space, both how you serve the virtual operations and what you do with the product of people participating more virtually.

What do you think is the fate of these Big City headquarters in places like New York and L.A.?

The Big City headquarters will remain in numbers that’ll be somewhat reduced, but I don’t think that much, but they’ll be much smaller. People would think much more of satellites, much more hub and spoke models than they have in the past.

This notion that you concentrate everybody in one place. The mothership and you have everybody there as much as you can. I think it’s going to change quite a bit, so we will still have these headquarters, but they will be much smaller in size and in dominance.

What are the implications for taxes of a remote workforce? What does that mean for cities, social services?

So first, states have to sort out how they want to deal with this. It’s fascinating to see states fight over tax income, and I understand why they’re doing it. We’ve got to have some uniform approach right now. As to how do you account for residency when the workforce goes more hybrid, and I don’t know what the answer is other than this is something that needs to be sorted out. Social services are going to evolve. They’re going to be provided to where people migrate to.

Economic recession

Which cities do you think will be ghost towns five years from now?

I don’t think cities will become ghosts because I remember when everybody said that’s the end of New York, and I said – no way. What pandemic does is adds an extra layer of urban challenges. If you look at New York, San Francisco, Boston, Los Angeles, Chicago, they had issues which now they’re going to have to deal with much more. So it’s going to be another set of challenges for city officials to deal with.

Where do you think salaries go from here? If people are no longer required to be in cities like New York or San Francisco and they can work remotely, are we going to see average median salaries go down?

It depends on who you are. We already saw labor shortages. When you changed the world, and you change the workplace skills, don’t adapt accordingly. What we’re going to see is much more bifurcation, much more bimodal, and that’s something that comes out of the pandemic.

What’s the greatest challenge that the pandemic, an ensuing recession exposed?

I think inequality. I think you know we all started thinking that we were equally exposed to Covid. We’re all in this together, and we’ll all get out of this together. No one is safe until everybody is safe. You’ve heard these phrases. But it didn’t take long to realize that that’s not true. Some people can protect themselves and their families much better, so maybe people can work from home and not miss a beat. Others had their livelihood destroyed or alternatively had to take massive risks in conducting their everyday life like people who help us in grocery stores.

So we’ve recognized that this pandemic wasn’t equal at all. I call it “the great unequalizer”, which actually surprised a lot of people, and we have to do a lot of very serious thinking, including companies.

Companies also have a responsibility for their communities. Every distribution that I look at: social, economic, political, institutional, that used to look very well behaved. We have found that the curve’s belly has come down, and the tails have gone up.

That is what inequality is about, but there’s a different issue. These bimodal distributions are much less stable than the normal distribution. And that’s why it’s really important to talk about these issues early on because we don’t want to introduce an extra element of structural instability to our world.

How would our economy fundamentally change if a significant number of employees decided to continue working remotely for the next several years or even indefinitely?

The good part of our economy serves the labor force like commuting or restaurants. They all serve the labor force, so that’s going to have to evolve. The good news is that part of the economy is quite flexible, so I expect it to evolve quite rapidly once we have clear evidence of what will emerge. The harder part of evolving will be office real estate that will take more time because we have too much capacity for what’s ahead of us.

Employers are legally allowed to fire employees who refused to get the Covid vaccine. But do you think that any will actually go through with it?

With it, I’m hoping that is not going to be a major issue. I’m hoping that people would realize that if you calmly assess the costs and the benefits, the benefits are so much higher than the costs, but this is going to be difficult, and there’s going to be enormous peer pressure on the people who are not vaccinated, so look for that to evolve.

There will be tensions like the attention’s right now on other things, but I don’t think it will get to a stage where they’re going to fire. But remember, other industries like international travel will move towards this notion of a vaccine passport in particular. And what we may find is that the catalyst comes from outside the workplace. People want to travel for holidays etc., and that may be the driver to a much higher rate of vaccination than would occur otherwise.

What is the future of schooling and childcare, and do you think we will see further disruption in the space?

In schooling going into the pandemic, we had an innovation that we never really used, and that’s called the upside-down classroom. You lecture by video, and you use the school time, the physical time to solve problems. And we discovered during the pandemic that our kids actually are quite good at consuming lessons by video, but where they really need help is in solving problems. That’s why they need the attention. You can’t just stick your kid in front of a computer and say listen to your class or listen to the lecture at university because there are all sorts of questions that arise.

So my hope is that the school system the university system will learn that you can deliver a lot of content on video, and you can free up the time of the lectures of the teachers to deal more with one on one. That’s my great hope. We’ve identified major gaps in our child care provision system. And we’ve seen how that impacts the labor force, how that impacts women, how that is disastrous for single parents. And I think that we have to pay a lot more attention. If you want to enable more people to work and work well, you’ve got to provide support on child care.

We’ve seen women fall out of the workforce at a much higher rate because of the child care crisis. Do you see that trend persisting, and should the government be stepping in to do something about it?

So I certainly worry that we have gone backward on female labor participation. We’ve gone backward on poverty reduction. I hope that if the government and companies support society on child care, this is temporary and reversible. It should be. This is not hard to solve.

Are we going to have a stronger economy in 2021 than we did before the pandemic hit, or are there going to be lasting implications?

Both. We’re going to have a very strong economy in 2021. We’re going to recoup quite a bit, if not all, of what we lost, and it was certainly by the middle of 2022. We will be back in aggregate. That’s the good news, but we’re going to have a number of legacies. Inequality has worsened, and not just inequality of income and wealth, but also the inequality of opportunity that has hit particularly hard certain segments of the workforce.

Women got hit much harder than men. Minorities got hit much harder than the majority. Those with less education got hit much harder than those who have a college degree or beyond. So we are also going to emerge much more unequal, and that is problematic. So while there will be a few segments hit particularly hard, it’s not going to be as bad as people thought in the beginning.

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