Covid and the Economy

Josh Hausman, writing in The Atlantic magazine, has provided data to support an argument that I have long felt to be true: The workforce in the US has shrunk in response to Covid.

Separate from the day-to-day toll of ongoing infections, COVID shrank the labor force, which was more than 2 million smaller in November than it was in February 2020.

Hausman, The Atlantic

This shrinkage has multiple sources:

  1. Persons close to retirement have opted to retire early. The proportion of people over age 50 who are retired has increased since the pandemic began.
  2. More than 750,000 Americans have died, many of whom were of working age. With the Delta variant, deaths from Covid are increasing now among those between the ages of 18 and 40, concentrated among those who are not fully vaccinated. In addition to the initial deaths, we have those disabled by Long Covid, the continuation of symptoms up to a year or more after the initial infection. For some, that disability may prove permanent. Others as noted in a prior post will die in the two years after the initial infection from organ damage caused by the virus.
  3. Both men and women are missing work to care for family members who are sick and children who need to quarantine.
  4. Women have left the workforce because daycare has become unavailable or unaffordable in many areas. Many facilities closed with the onset of the pandemic and have not re-opened. Schools are not fully open in many areas.
  5. We are continuing aggressive policies to exclude immigrants who might fill the vacancies in the workforce. This is true for both unskilled and highly skilled (H1-B) workers.

At the same time, we have had an abrupt shift from an economy based on services to one based on products. In opting to stay home, people are buying entertainment devices and upgrading kitchens, rather than spending money on travel and restaurants. Covid breaks supply chains while increasing demand for products shipped through those chains.

What does a worker shortage do? Put simply, it drives inflation. Employers are forced to raise wages to get workers and overstaff to offset unplanned absences. The absence of workers (here and overseas) leads to supply chain disruptions and product shortages at the point of sale.

The pandemic also disrupts the supply of imported goods, raising their price. This happens directly, as infections and lockdowns abroad hamper production; a lockdown in Vietnam in August, for instance, disrupted the computer-chip supply. COVID-related border restrictions may also make coordinating production across countries more difficult.


The chip shortage Hausman mentions affected car and electronics manufacturers around the globe. Shortages of truck drivers led to delays in unloading ships and product shipments on the ground in the US, leading (as also discussed in a prior post) to allowing teens to drive tractor-trailers.

It’s all about basic economics: supply and demand. Increased demand puts upward pressure on prices. Reduced supply puts upward pressure on prices. When both happen at the same time, the result can’t be good. Thus the 6.2% annual inflation rate this year, the highest in the US in almost 40 years. Salaries are rising, but costs are rising faster.

Another thing happening is an exodus of jobs from the US. Companies are offshoring jobs that can be more easily staffed outside the US. Two major and well-known health insurance companies now take incoming calls from their US customers in call centers in the Philippines. (I’m not going to name those two because I rather suspect their competitors are doing the same thing.) Data analytics and software coding is also being sent overseas.

The pandemic provides a distraction and political cover while the worker shortage provides the economic justification to move jobs out of the US.

Bottom line: A healthy economy requires a growing consumer base and a growing workforce. That’s not what the US has now.

I doubt that the advocates of closed borders thought that closure might lead to job losses in the US. It’s that old “law of unintended consequences” striking again.



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