Perspectives From A Labor Economist And Epidemiologist

I had the pleasure of participating in a panel discussion on day two of the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) annual conference. Bill Mudge CEO of the WCIRB moderated a discussion that looked forward and somewhat over the horizon. We focused on the future of working labor, medical science, and the long term or latent issues from COVID-19. Our dialog explored the opportunities that COVID-19 and economic recession have unlocked, and the accelerated trends that were already emerging. Joining the discussion were Dr. Sylvia Allegretto PhD., the labor economist and co-chair of the center for wage and employment dynamics at the university of California. Also joining us was Jacek Skarbinski, MD Physician and Research Scientist with Kaiser Permanente.

The session kicked off with a question about what the panel is optimistic about. Sylvia started by stating she was optimistic about the long-term issues that came to the forefront. Issues like the lack of affordable healthcare, childcare, paid time off, and low wage workers. Jacek spoke to the major progress made in developing an incredible amount of diagnostic testing and treatment infrastructure for COVID-19. He likened the effort to the Apollo project, with vaccines that are so much better than any other vaccines we have ever made, and on a much faster timeline.

My optimism stems from the belief that we are positioned to drive considerable advancement in our human development over the next two decades. However, that optimism is tightly linked to the next piece of the discussion which focused on what we are each pessimistic about. As I described in my answer, some of those same drivers that have me optimistic also tend towards the pessimistic. For example, we must go back to the 1940s and fifties to find the last time we’ve been in a truly transformative era. It took global cooperation to establish our modern society and avoid the catastrophes of the last century. It will take a similar level of global cooperation to manage the challenges that lie before us – cooperation that is lacking in our current global discourse.

Jacek had two big sources of pessimism. One not surprisingly was COVID-19. He described the highly transmissible new variants and the lack of insight into whether they cause more severe illness. He mentioned that in the early days of the virus, the belief was that 50% vaccine efficacy, and 50 or 60% vaccination rates would drive herd immunity. We today, have vaccines that are 90 to 95% efficacious that were rolled out in many communities at the 70% plus mark. Yet we are still seeing rampant viral transmission. Sylvia was pessimistic about our ability to resist a return to normalcy. She focused on the opportunity we have for a reset. While pollution dropped during the lock down, she is concerned that people are already rushing back to offices, driving traffic and pollution back up. The pandemic illuminated issues in the labor market that require a policy response, instead, she is concerned that we simply return to normal.

We then focused on the question of what employers can do going forward. I talked about the open questions yet to be resolved surrounding the future of work. Remote, office, or hybrid? What does the future office look like given the challenges of this and possible future pandemics? Importantly, the last year and a half has made resilience and adaptability a much bigger focus area for employers. What do we need to do differently to survive the next extreme event? Bill then shifted to the question of labor shortages. Sylvia reacted by saying that there is no labor shortage. In her view, you can’t have nine and a half million people unemployed and say there’s a labor shortage. While shutting an economy down is easy, opening it back up takes time. She mentioned the domains (restaurants, hospitality) that are experiencing labor shortages are also the lowest paying jobs with no benefits. As people have had time to reflect, she feels that it is not surprising that many are not running back to those jobs. She made a very interesting point: statistics from the bureau of labor indicate that quit rates are up. Typically, in a recession, quit rates are down. People are therefore switching occupations and entire industries.

More interesting data. She indicated that typically over half of workers in the U.S. take the first job offered to them, but now it’s less than a third. Workers are taking advantage of an economy that has never been in this state before with so much opportunity coming on board at once. Bill reiterated that he is hearing from employers that they can’t find workers. Whether it’s in agriculture, construction, or hospitality, employers are paying bonuses just to find people. I agreed with Sylvia in that there was lot of time for introspection and that introspection has led to a change in perspective. I do however belief some of this is structural. We had trouble finding truck drivers well before the pandemic happened. If we look at demographics, there is a global drop in working age population. Many have felt that automation would accelerate as a result, and now COVID-19 amplified that trend for at least two reasons: the need for resilience and the changing labor demographics. If extreme events are the new normal, employers can’t be in this position again.

The conversation shifted back to COVID-19, specifically, the long hauler issue. Jacek described different scenarios and manifestations including prolonged fatigue and its transition to chronic fatigue syndrome. He indicated that we still don’t know duration. There’s a big difference between a three-month duration of symptoms and a lifelong duration. Additionally, we do not know how the new variants are going to affect it. No data exists right now to suggest that vaccination prevents people that get COVID from experiencing post-acute issues. Given that the healthcare situation interacts with the labor market Bill asked Sylvia for her thoughts. She reflected on what may need to be done to keep families whole if individuals can’t work. She stressed the need for good policy responses, which are not easy, nor likely to happen overnight. Consistent with the uncertainty of this current era, employers will deal with the uncertainty of workers who may be in and out of the labor force over a long period of time.

Bill then shifted the discussion to the impact of COVID-19 on small business and their recovery prognosis. Sylvia referenced the good government programs that put money in the hands of small businesses. Historically, small businesses have difficulty weathering long storms because they don’t have the resources. She shifted to the lack of competition in this country and the fact that capitalism hinges on a healthy amount of it, including small businesses. The concentration into the hands of a few, very large corporations was a problem pre-pandemic. I have viewed the small business issue through both a positive and a negative lens. Clearly, many small businesses did not survive the pandemic. However, those that did innovated both at the offering and the business model level. These businesses became more resilient and better equipped to weather the next storm. In a world that promises more frequent extreme events this is a positive outcome. Many stories are told of business model innovation that allowed small businesses to stay whole, for example, food delivery.

This panel discussion touched on a macro-level issue, namely the need for proactive policy response and human action – and there’s really nothing proactive about the way we’re handling things today. When I did a keynote for WCIRB a couple of years ago, I really impressed upon the audience that thinking differently is the most critical thing any one of us can do in this emerging era. Unfortunately, regardless of what level the policy comes from, we’re viewing everything through an old lens established in an era that doesn’t exist anymore. Unless we start looking at things through the lens of the future, we’re inhibited in terms of our policy responses. Most importantly, I’d urge every leader listening to this panel discussion to allow themselves to think differently, to not hold onto belief systems that were meant for a different time. Bill asked me how do we do that? The most difficult thing for humans to do is unlearn. We get stuck in what we’ve known and what’s made us successful in the past. We don’t allow ourselves to unlearn and relearn. It is unfortunately something that works against human nature. So that’s not an easy question to answer, but unlearning sits at the heart of it.

A question from the audience focused on the Delta variant, specifically does Jacek think variants and the stalled vaccination rates will bring us back to high infection rates. Jacek said it is impossible to predict given what we know. What we’re seeing now is the Delta variant is much more transmissible than the original. The virus has changed and will continue to change, but we don’t know how. He believes we will be playing a game where the virus gets ahead, we catch up, and then it gets ahead again. He stated that we are going to have another surge, and that is the world we should be planning for both in our workplaces and our personal lives. In healthcare, he sees a future focused on continuing to do the things they are supposed to, while dealing with this new reality. He stated that in this new world, the best protective efficacy is a combination of vaccination and natural immunity. From a practical perspective, everyone should get vaccinated. If you had or get COVID, natural infection is not fully protective, you are at risk of getting re-infected.

Shifting direction again, Bill asked about supply chain disruption and associated inflation. He wondered if we are dealing with longer, more structural issues with supply chains. I responded that supply chains, just like everything else, were an issue prior to the virus. Anti-globalization sentiments were already influencing thinking on supply chains. The virus did indeed disrupt them, and it is leading to inflationary pressures, influenced by high demand and scarcity of resources. However, many of these issues were on the horizon and are now amplified and accelerated by COVID. For example, resource scarcity is a growing concern. An accelerated move towards renewable energies requires resources that are going to shift the political dynamic of our day. That will influence thinking on future supply chains. COVID is but one of many factors to consider when trying to assess the future of supply chains, they must withstand shocks and rapid shifts. Leaders will focus on resilience, which in turn drives more automation. Repatriation and associated automation are another big topic, as is a shift towards regional versus global supply chains.

Sylvia agreed that issues existed in labor markets and supply chains prior to COVID, and they are all coming to a head at once. She sees a lot of what’s happening now as temporary. For example, current high demand for cars will work itself out. Price increases due to supply constraints will resolve themselves, but she agreed that discussions about how to do things in the future are happening. Bill asked my opinion regarding regional versus global supply chains in the future. There are many factors influencing possible paths. The big unknown relates to how geopolitical dynamics play out in the short and long-term. The China and U.S. dynamic over the next several years plays a pivotal role in the future of supply chains. Shifting resource requirements (e.g., renewables versus fossil fuels) shifts the balance of geopolitical power. All those factors considered, my current view leans towards regional versus global supply chains. Jacek added that we have a lot of vulnerabilities, both in the general non-healthcare and healthcare supply chains. In the healthcare associated supply chain, especially for specialty products, we don’t have a lot of resilience. If one company is the sole manufacturer of a product, and a COVID outbreak happens, or a flood, hurricane, or other natural disaster, that product is gone from the market. He therefore believes that diversification and resiliency are important for our supply chains, especially for things like medical supplies.

The conversation shifted to skill gaps. Bill asked Sylvia where the critical gaps are right now in the labor force. Sylvia does not believe we have a skills gap. She stated that over the last couple of decades, the bureau of labor puts out forecasts of the growing services industry, breaking out how much training and education you need. She added that most jobs coming online need almost no education and very short-term on the job training. She points to one of the largest growing industries in the country over the last 20 years, the restaurant industry. Right now, they’re screaming that they can’t find jobs at the wages and benefits that they’re offering. She argues the issue is not a skills gap, but rather low job quality. The remedy is making these better jobs. She shifted to immigrant labor and the fact that I mentioned low birth rates and an aging population. She positioned that if we need more workers, we should be doing everything we can to open the borders and to have reasonable policies and immigration. Immigrants come in and start contributing to our economy. I agreed with her immigration comment as there are reasons why immigration has historically been a good thing for countries like the U.S. I also disagreed a little bit with Sylvia regarding automation and its impact on jobs. This is a polarized conversation, no matter where I go there are those that believe we have been here before and we’ve never had a problem with jobs. However, we see foreshadow in countries like Japan and the implications of not enough workers, not enough young people to care for the elderly. Here, automation is a necessity.

When Sophia the humanoid robot does rehab with the elderly, you are addressing an acute problem through technology. You move towards a place where a robot could do much of what a human is doing today through necessity. Through that necessity, we cause ourselves a problem somewhere down the road. There is a view in some circles that by 2030, with continued drops in fertility rates – which declined further because of COVID – and the continued aging of society, we could have an acute problem in 2030 with a mismatch of people versus jobs to be done. The discussion of worker shortages can be debated, but a look into possible futures indicates that it could be a driver of automation this decade. The skills gap is a tricky conversation that is tightly linked to education. The question I get most often is what should my children study in school to survive in a different world, and what are the skills that people should nurture? In my mind, the answer is always the same. If the world of the future is more automated and more robotic, then it is our humanness that distinguishes us, our right brain characteristics. That part of us that represents emotional intelligence, social intelligence, creativity, and empathy must be nurtured in ways that allow us to thrive in our emerging world.

Sylvia added that she was saying something similar in her response. That robotics and AI augment workers, not substitute for them. She pointed to my example of home healthcare workers – one of the biggest growing occupations of the near future. Anything we can do to help with that tough physical job is welcome. Robots and AI can reduce injury on the job and make them more productive. She stated that the problem is those workers are never paid more once they become more productive. Who is benefiting from increased productivity? The last 40 years tells us it is not workers. She stated that in the past, productivity gains driven by technical growth went to workers and businesses alike. Jacek added that healthcare had to adjust to a virtual model through necessity, and now they are looking at what things they need to do in person versus virtual. He beliefs that just like hybrid offices, medicine is exploring this hybrid model. One learning he referred to is that interestingly a virtual only strategy doesn’t work. He stated that so much of medicine is an in-person profession that we really need to do a mixture of both. Individuals will get their care in a hybrid model going forward. Based on workers compensation data, COVID is an accelerant driving an explosion in telemedicine. As new entrants into the field drive innovation in virtual-only medicine, healthcare becomes just like retail: organizations will decide how much brick-and-mortar presence they will have.

From there, the conversation shifted to acceleration. Bill asked me to explain what I mean when I talk about COVID as an accelerant. In response, I pointed to the pandemic’s ability to illuminate things that were already lurking beneath the surface, but in many cases ignored. One of the best statistics that underscores acceleration is that we saw 10 years of e-commerce growth in three months in the early days of the pandemic. As a result, automation of last mile delivery accelerated, ramping efforts to utilize drones and other mechanisms of delivering to your doorstep. Other examples include acceleration towards digital learning, as we were forced to find other ways to educate our children. This massive movement towards digital learning is something that needed to happen sooner, but like everything else, it took a catalyst to force the issue. Of course, there have been bumps in the road, and some will tell you it was a failed experiment, but it’s here to stay at some level. Sylvia added that as far as education is concerned, specifically kindergarten to 12th grade, kids need to be in school.

There are also practical realities. She mentioned childcare and the fact that women are in the labor force and kids being physically in school is a key enabler. We know that women are coming back to work slowly because they are caretakers of other family members and children. These are all examples of things that accelerated. Now, around the edges of those changes lies acceleration in the underlying technologies. For example, virtual reality – which is likely one of the most impactful and profound changes that will happen to humanity in the next 10 to 15 years – is accelerating to support the things we now do virtually. Invention therefore accelerated because of a catalyst, thereby accelerating the timeline towards realization. Sylvia and I discussed the negative externalities of innovation. She reacted to the destruction of small business and significant truck traffic and pollution driven by the growth of ecommerce. She believes that if these negative externalities were priced in, growth would stall. The two faces of innovation date all the way back to fire. It was great for cooking, but also burned down villages. We must accept that these advances are going to have their downsides. However, I’m a big believer that once value is created, society very rarely walks back from that value.

Bill then focused the discussion on the future prognosis for California. Jacek started by pointing to another large crisis that is looming. He stated that we might as well get used to upheaval like pandemics because the next decade will bring larger upheavals. He believes climate change will be one of California’s biggest vulnerabilities, which makes the COVID pandemic seem very straightforward regarding how to manage it. In his opinion, climate change is going to reorganize our society and affect our health. Sylvia agreed. She sees climate change interacting with the workforce.

Bill closed the panel with a question: if you could be an insurance company CEO for a day, what is it that would keep you up at night? I responded with two things. First, the uncertainty of our world is a big issue that many are wrestling with, and second is the speed at which the world is moving. The pace of change itself is overwhelming for most leaders. If I were to focus on something that I would do differently or better, it would be a constant focus on the future. Not thinking about it in traditional terms like three-to-five-year plans, but more of an iterative, constant viewing of where these potential paths could take us and what that might mean to my organization or me personally.

Sylvia identified COVID and the current surge as the issue that would keep her up. She said we must bring this under control, and that the U.S. must be a leader in vaccinating the world. Jacek went with an amalgam of the two, with uncertainty and the unexpected on one end, and COVID and its role as accelerant on the other. He sees climate change as the next big one and views it as a much harder problem to solve, requiring an interconnected planet and collaboration.

Bill thanked and closed the panel. I want to thank WCIRB, Bill, Sylvia, and Jacek for the fascinating discussion.

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