Will there be a “post-covid” economy ?

We are all won­de­ring what the pan­de­mic will change in the long term. Will the Covid-19 health cri­sis leave a long-las­ting trace in our eco­no­mic sys­tem ? Its a ques­tion we still can­not ans­wer with cer­tain­ty because it is dif­fi­cult to assess what struc­tu­ral rup­tures will remain after the cri­sis is over. Howe­ver, we can see at least six pos­sible dis­rup­tions in the fields of the labour mar­ket, indus­try, ener­gy tran­si­tion and digi­ta­li­sa­tion, as well as mone­ta­ry and fis­cal poli­cies. At this stage, these are only trends and weak signals, so only time will tell if they come to pass.

1. Labour mar­ket : fewer appli­cants and higher wages ?

Since the late 1990s, OECD coun­tries have expe­rien­ced a dis­tor­tion of the income dis­tri­bu­tion to the detriment of employees. There has been a decline in employee bar­gai­ning power with com­pa­nies they work for (Figure 2A). Howe­ver, since the begin­ning of the health cri­sis, there has been a decline in par­ti­ci­pa­tion rate, i.e. the pro­por­tion of wor­king-age people ente­ring the labour mar­ket has fal­len (Figure 2B). If this trend were to conti­nue or increase, the rising ten­sion on the labour mar­ket would be favou­rable to employees and wages would rise, thus gene­ra­ting some inflation.

2. Will indus­tries recover ?

For more than twen­ty years, the amount of pro­duc­tion by advan­ced eco­no­mies has been on the decline. Howe­ver, since the begin­ning of the Covid cri­sis, we have seen a drop in the consump­tion of ser­vices due to health res­tric­tions (res­tau­rants, lei­sure acti­vi­ties, etc) accom­pa­nied by a sharp rise in the consump­tion of goods. This is lin­ked to the deve­lop­ment of online com­merce and dif­ferent needs or desires that emer­ged during the lock­downs (gar­de­ning, deco­ra­tion, crea­tive lei­sure acti­vi­ties, etc.). In the face of this, will indus­try reco­ve­ry (graph 3B)? Yes, there is rea­son to believe so thanks to the new needs lin­ked to wor­king from home (elec­tro­nics, fur­ni­ture), the need for equip­ment for rene­wable ener­gies (wind tur­bines, elec­tro­ly­sers for hydro­gen) and because of govern­ment reco­ve­ry plans and invest­ments in infra­struc­ture. Will this create jobs in OECD coun­tries ? It could be the case, if some pro­duc­tion is relo­ca­ted for rea­sons of sove­rei­gn­ty or to sim­pli­fy the sup­ply chain (medi­cines, high-end tex­tiles) this would increase the need for skilled workers.

3. What will be the conse­quences of acce­le­ra­tion in the ener­gy transition ?

The pan­de­mic has contri­bu­ted to acce­le­ra­ting the ener­gy tran­si­tion, but it is not yet clear what the conse­quences of a rapid tran­si­tion to net zero CO₂ emis­sions in 2050 would be. Will the jobs des­troyed (car indus­try, oil sec­tor) be repla­ced by others (ther­mal insu­la­tion, wind farms)? Will rene­wable ener­gy equip­ment be manu­fac­tu­red in OECD coun­tries or impor­ted ? For the moment, the share of the these pro­ducts manu­fac­tu­red in France is very low. The second option – import – would lead to a decrease in added value for these eco­no­mies. And final­ly, what effect will the ener­gy tran­si­tion have on the price of ener­gy ? The inter­mit­ten­cy of rene­wable ener­gy pro­duc­tion will like­ly mean a sharp increase in price because of the need for elec­tri­ci­ty storage.

4. Is digi­ta­li­sa­tion posi­tive for the economy ?

Nothing is less cer­tain. Digi­ta­li­sa­tion of the eco­no­my has acce­le­ra­ted since the begin­ning of the pan­de­mic (e‑commerce, deli­ve­ries). Howe­ver, while digi­tal tech­no­lo­gy creates high­ly skilled jobs in the desi­gn of ser­vices (com­pu­ter deve­lo­pers, engi­neers), it also creates a large num­ber of uns­killed jobs (deli­ve­ry per­son­nel, packers). This pola­ri­sa­tion results in strong income inequa­li­ties. Moreo­ver, it is not at all cer­tain that the digi­tal eco­no­my increases pro­duc­ti­vi­ty. On the contra­ry, it has been obser­ved over the past 20 years that the increase in invest­ment in new tech­no­lo­gies has coin­ci­ded with a slow­down in pro­duc­ti­vi­ty (Figure 5B).

5. Can cen­tral banks change their policies ?

The “wha­te­ver the cost” approach to saving com­pa­nies and jobs by the govern­ment has requi­red the inter­ven­tion of cen­tral ban­kers. In doing so, they have mone­ti­sed state debt by great­ly increa­sing the volume of money in cir­cu­la­tion i.e. prin­ting bank­notes. Contra­ry to wides­pread belief, govern­ments will not have to repay a large part of the debts they have contrac­ted, as these are now recor­ded as lia­bi­li­ties of the Euro­pean Cen­tral Bank (ECB) and the Fede­ral Reserve, and it is dif­fi­cult to see why this option should change (Figure 6B). On the other hand, if mone­ta­ry poli­cy has made it pos­sible to main­tain the sol­ven­cy of states, it has strong reper­cus­sions on asset prices. The avai­la­bi­li­ty of liqui­di­ty results in higher asset prices (real estate and cor­po­rate values) which increase wealth inequa­li­ty (Graph 6B). On the other hand, it is not clear whe­ther a rise in inter­est rates would lead to a public debt crisis.

6. Can states fore­go public defi­cits ?

The health cri­sis has requi­red huge mobi­li­sa­tion of liqui­di­ty and govern­ments have real­ly pushed the usual limits of defi­cits and public debt (Graph 6E). Public opi­nion has become all the more accus­to­med to these increases because of the gro­wing num­ber of needs : ener­gy tran­si­tion, relo­ca­tion, health, research, young people, the fight against pover­ty. In France, for example, there are seve­ral announ­ce­ments per week that require an increase in public debt (invest­ments in Mar­seille, reim­bur­se­ment of psy­cho­lo­gy consul­ta­tions, com­mit­ment income for young people). Will states be able to return to more sobrie­ty ? We don’t know, but we do know that if they don’t, the pres­sure on cen­tral banks to main­tain their accom­mo­da­ting poli­cies will be considerable.