The COVID-19 crisis is not hitting all workers and sectors equally, and new research points to one reason for the imbalance.
Industries whose workers were likely able to telecommute have been much better able to adapt to the challenges created by the pandemic — experiencing smaller declines in employment, stock market valuation, and projected revenues, according to the study.
“Our work suggests that the economic costs of COVID-19 are not going to hit all sectors equally,” said MIT Sloan professor of finance. “Unfortunately, these costs are likely to be concentrated on some of the least fortunate people in society.”
Schmidt coauthored the research with Dimitris Papanikolaou, PhD ’07, a professor of finance at Northwestern’s Kellogg School of Management, who said, “The pandemic has hit the service sector the hardest, which is also the sector employing a disproportionate number of blue-collar workers, especially women, without a college degree.”
Using data from the Bureau of Labor Statistics’ American Time Use Survey — which contains information on Americans’ ability to and previous experiences with working from home — the researchers constructed a metric of COVID-19 exposure as a way to gauge how sensitive certain industries and occupations were to lockdown constrictions.
Overall findings of “Working Remotely and the Supply-side Impact of COVID-19” revealed that the sectors where the workforce could not telecommute had:
- Greater declines in employment.
- More reductions in expected revenue growth.
- Worse stock market performance.
- Higher expected likelihood of default.
- Lower cash on hand to fund operations.
- Higher likelihood of having missed scheduled payments.
In terms of individual employment outcomes, lower-paid workers who could not work from home — especially female workers with young children — were significantly more likely to become unemployed.
Employment losses smaller in telecommute-friendly sectors
When the authors compared their COVID-19 exposure metric to BLS employment data, they found that industries with a large percentage of workers who couldn’t work remotely during the pandemic (and therefore were subject to more disruptions from the COVID-19 virus) experienced significantly larger declines in employment than sectors where more of the workforce could telecommute. For every one-standard-deviation increase in the exposure metric, employment declined 10%.
Employment losses were much smaller for non-critical workers in telecommute-friendly sectors, such as professional, scientific, and technical services, and information technology, than in the hotel and entertainment sectors, where most workers could not do their jobs from home. Those industries where remote work was quite feasible had 3% declines in employment in April 2020 relative to April 2019, while hotel and entertainment experienced declines of 47% and 55%, respectively.
Women and lower-earning workers are particularly hard hit
Some individuals fared worse than others in terms of employment prospects. An increase of one standard deviation in the authors’ COVID-19 exposure metric was associated with a 15% probability of nonemployment for non-college-educated female workers with young children. “Their sensitivity is about three times larger than the average,” Schmidt said. Low-income workers who cannot work from home also exhibit a much higher likelihood of job loss.
Schmidt said that unemployment benefits will temporarily help ease the financial burden that many families face but acknowledged that working parents still face a conundrum: Who will care for their children if schools remain closed?
“If COVID-19 lockdowns persist, and we aren’t able to open up schools and help people to find child care, then we could have a really big economic mess on our hands, even bigger than the one we already have,” Schmidt said. “If we can’t figure out how to put measures in place to enable people to get safe and reliable child care, it seems like they’re unlikely to be able to return to work, even if businesses are supposedly allowed to reopen.”
This finding is particularly troubling because low-income households often don’t have a nest egg that they can tap into. “They’re less likely to have liquid financial wealth that they can draw on in hard times,” Schmidt said. “Government transfer payments can only last so long.”
The stock market favors telecommute-friendly firms
Schmidt said that the research also revealed a “very striking” relationship between the COVID-19 exposure metric and the change in the value of the stock market between mid-February and May. Specifically, an increase by one standard deviation in the authors’ COVID-19 metric (meaning that an industry was more exposed to the virus based on the ability to work remotely) translated to a 6.7% decline in stock market performance.
Airlines, for example, experienced stock market declines of more than 65% between Feb. 14 and May 15. “Stocks such as airlines and cruise ships have taken an absolute beating, and their workers cannot work from home,” said Schmidt.
On the other hand, information technology companies, where it’s business as usual to have employees work remotely, fared far better. Big Tech has emerged as a winner during the pandemic, with the tech-heavy Nasdaq 100 setting new highs and Google and Facebook encouraging remote work until 2021 to weather the storm.
Papanikolaou and Schmidt found those examples were representative of a more systematic pattern: within non-critical industries, stocks of the most exposed companies underperformed the market by almost 18%, where stocks of the least exposed companies beat the market by more than 7% percent. Critical industries also outperformed the market as a whole, especially early on in the crisis.
Current policies fail to target the most disrupted sectors
Papanikolaou and Schmidt hope their findings might aid in a more targeted approach to government aid going forward.
In the United States, stimulus checks were distributed to all workers below an income cap, without regard to industry or employment status, and the Paycheck Protection Program likewise offered forgivable loans covering up to 2.5 months of payroll to almost all businesses below a size threshold.
“Many of the policies we’ve enacted to address the crisis do not take worker and sector differences into account and send money to everyone irrespective of need,” Schmidt said.
Moreover, since the research showed higher income workers are more likely to be able to work from home and firms paying higher salaries could borrow more, the policy had the perhaps unintended consequence of directing more aid on a per worker basis to some of the least disrupted sectors.
“Going forward, a more targeted approach may be more prudent,” Schmidt said.