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COVID-19 Has Accelerated These 4 Labor Market Trends

Despite hopes for a strong economic recovery in 2021, the U.S. labor market is still clawing back its pandemic job losses.

With COVID-19 case numbers rocketing back up, it may be a while before the U.S. labor market picture comes clearly into view, says Benjamin Friedrich, an assistant professor of strategy at the Kellogg School who researches labor and personnel economics.

But while the short-term economic picture is highly uncertain and dependent on the pandemic’s trajectory it is clear that several long-term changes to the labor market are already in motion.

“Instead of asking when the job market will fully recover,” he says, “we need to think about how the pandemic triggered or accelerated trends in the labor market.”

Friedrich points to four labor-market trends to watch.

Workplace Flexibility Is Here to Stay

Without a doubt, the pandemic’s greatest impact on employment has been the rapid and widespread adoption of remote work. In Friedrich’s view, workers gaining more flexibility in how, where and when they work is a shift that’s here to stay.

Prior to COVID-19, few companies were experimenting with workplace flexibility. One of the main reasons was that firms struggled to calculate what it would cost them — in terms of communication and efficiency — to have employees working across locations. While some companies had success with dispersed international teams, Friedrich says that overall, most lacked data on how to make it work.

“I don’t think this kind of persistent change would have happened without the pandemic,” he says. “Beforehand, there was little need, and it seemed like a costly thing to do. This was the disruption needed to spur experimentation and investment in home offices, as well as widespread adoption of technological improvements in communication and virtual teamwork.”

The open question for companies now is how much flexibility to retain as workers return to the office.

“Companies will have to better describe what type of work and what kind of flexibility model is most valuable and least costly to production,” he says. “We are already seeing dispersion in companies’ willingness to offer remote and hybrid work, which will be an important job characteristic in attracting and retaining talent.”

At the same time, hybrid work could raise new challenges for companies’ DEI efforts. If, for example, women are more likely to work from home, the situation gets complicated should remote work hurt their chances of career advancement.

At least now companies will have better data to start to tackle some of these challenges.

‘People Analytics’ Will Increasingly Help Companies Manage Talent

Speaking of data.

The last year has accelerated the role that data analytics plays in how companies make decisions regarding their workforces—from talent acquisition and training to team safety and well-being.

“The pandemic has led to a rapid increase in the availability of data, including Zoom communications, online tests for recruiting and remote monitoring technology,” Friedrich says. “There’s growing demand by firms to put this information to use in improving operations.”

For example, many companies are using survey tools to stay informed about employee engagement and to get feedback that can help them design hybrid workplaces.

“For example, people analytics can help leaders understand communication networks within the company, including which team members would benefit most from personal versus virtual interactions,” Friedrich says.

They are also looking to data to help with recruiting, promotions and DEI goals. People analytics can help identify underlying biases in pay and promotions, task assignments, mentoring opportunities and other areas where inequities can surface.

“Data collected by new remote monitoring technology may also help to assess performance and could be used for incentive pay for some jobs,” Friedrich says. “Overall, I think this usage of data for talent management is here to stay and has huge growth potential.”

Although people are typically hesitant to leave their jobs in a crisis, long periods of remote work coupled with caregiving and schooling have left many workers burned out and ready to hit reset.

The Job Shift Is Real

Over the last 18 months, both market turmoil and deep uncertainty have led employers in many industries to shed millions of jobs. While Friedrich is confident that employment will continue to tick up over time, it is not yet clear which jobs will come back and which are gone for good.

Research shows that in many cases, automation creates “tasks shifts” rather than job losses. For example, as companies reduced business travel, virtual-meeting technology improved, leaving professionals with more time to spend on other aspects of their jobs such as research and analysis.

“Some of the job shift will require occupational change,” Friedrich says. So while some of the hospitality jobs might never come back, more programmers, technicians and engineers will be required to design and maintain that virtual meeting technology.

Similarly, the shift towards e-commerce “means lower labor demand in retail stores and supermarkets, and increased demand for warehouses and transportation workers.”

Thankfully, the U.S. labor market is relatively dynamic, with a highly mobile workforce able to adapt to new positions. The flipside of this dynamism, however, is a trend that has already begun to play out — companies having trouble retaining workers.

“Some survey evidence is pointing to a high willingness among American workers to change jobs,” Friedrich says.

Although people are typically hesitant to leave their jobs in a crisis, long periods of remote work coupled with caregiving and schooling have left many workers burned out and ready to hit reset — at a new organization, or in a new industry.

Workers Will Command Higher Wages

The pandemic accelerated increases to hourly wages in lower-paying jobs, especially in the retail and service industries. For example, some of the largest online and big box chains like Amazon, Best Buy, Costco and Target all raised their minimum wages to $15 or $16 per hour — more than double the federal minimum wage.

Friedrich believes that two forces have triggered the rise of retail’s minimum wage: strong pandemic profits and anticipation of impending regulatory changes.

With retail chains needing to staff up as the economy opens and customer demand grows, those that can pay more are doing so in order to be more attractive to workers.

“We are seeing wage pressure building among big competitors,” Friedrich says. “It’s hard to motivate people at a minimum wage, so just distinguishing yourself from other competitors can be a useful strategy.”

As for regulatory changes, twenty-five states have raised their minimum wages in 2021, and U.S. President Biden has increased federal contractors’ minimum wages through a recent executive order.

As national support for the lowest earners gains momentum, “companies are getting ahead of the curve,” says Friedrich.

They are even calling out competitors, such as Walmart, for paying as low as $11 in some places, despite having an average minimum wage of $15 per hour. This pressure to standardize wages could help to lift them across the U.S.

And what of the Delta variant, currently upending companies’ best laid return-to-work plans? How might that affect wages in the short term? It depends.

“This will lead to a slower recovery of labor supply, especially in areas with lower vaccination rates, where more people may also get sick and miss work time,” Friedrich says. “This may not necessarily lead to further increases in wages, though, because consumer demand — and hence labor demand — may also fall in areas with larger delta outbreaks.”

This piece was originally published on Kellogg Insights.

Benjamin Friedrich

Assistant Professor of Strategy at The Kellogg School

Benjamin Friedrich is currently an Assistant Professor in the Department of Strategy. Professor Friedrich’s main research interests are in labor and personnel economics, and his work frequently overlaps with topics in international trade and health care. His research combines administrative panel data sources to study the interaction of firms and employees, with a particular focus on hiring and promotion strategies of firms and on worker career paths within and across organizations.

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