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Why US needs to be prepared for a profitless recovery when life starts to return to normal

Conor Sen


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Grounded: JetBlue aircraft sit with their engines covered at JFK International Airport in New York. Photo: Bloomberg

Grounded: JetBlue aircraft sit with their engines covered at JFK International Airport in New York. Photo: Bloomberg

Bloomberg

Grounded: JetBlue aircraft sit with their engines covered at JFK International Airport in New York. Photo: Bloomberg

Reopening the US economy is going to be a slow, painful process and nothing like turning a light switch back on.

Economic activity and employment is going to be down significantly for a while.

If there's any good news for workers it's that the economic activity that does occur will be more labour-intensive than it was before the coronavirus dealt such a huge blow to the economy. We're used to the past couple of rebounds from recessions being jobless recoveries, but this one will be very different.

A good way to start thinking about this is to focus on businesses that have continued to operate throughout the crisis, such as grocery and big-box stores.

Enhanced-sanitation standards and social-distancing requirements will mean that companies have to spend more on intensive cleaning by janitorial staff than they did before, and they likely won't be able to cut workers' hours in direct proportion to reduced customer traffic.

It will likely be a similar story for bars and restaurants.

Right now restaurants that continue to operate are relying on drive-through window and takeout business to sustain some level of activity.

But even after sit-down business resumes, it will likely be with mandatory social distancing and fewer tables and bar seating.

This might mean that a restaurant has a 50pc reduction in sales but only a 25pc decline in labour costs.

Social-distancing requirements for transportation will mean something different. In the off-chance event that demand comes close to normal before the virus has passed, we may end up with even more cars on the roads and traffic jams as people avoid public transportation.

Airlines are now blocking off middle seats to enforce social distancing. With air traffic down more than 90pc, this isn't much of a sacrifice right now. But this means that even in the best case, aeroplanes will be running at two-thirds occupancy but still need both a pilot, a co-pilot and a crew on all flights.

For more normal day-to-day travel, taxis, limos and ride-hailing services may be restricted to two passengers instead of four, and cities may need to run even more buses on popular routes to avoid overcrowding.

Manufacturers will have to adopt social-distancing and enhanced-sanitation protocols as well. Workers who are spaced farther apart and working at lower speeds will be less efficient, but production will likely fall more than labour hours do.

These only represent the changes at the individual company level, but restarting the economy on a large scale may require new administrative systems that test and trace for the virus.

Massachusetts is hiring 1,000 people to work on contact tracing. Extrapolating that out to the country as a whole might mean 50,000 people working on contact tracing, and it's possible that number could be an underestimate based on how widespread the virus is.

We may also need new public health security systems akin to metal detectors at airports and sports stadiums, not to mention large office buildings.

Temperature checks may become commonplace for a while, either by humans wielding thermometers or with technology-based systems.

The former would be labour-intensive and time-consuming, and the latter would need someone to build the hardware, write the software and maintain the systems.

Through a mix of decisions made by employers and new laws and guidelines drafted by policy makers, there's also a good chance that wages for frontline workers, whether in hospitals, grocery stores and public-transport rise - at least for a while - to account for the added risk of their jobs.

So instead of the jobless recovery that we might normally expect, we might have a profitless one instead.

Irish Independent