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Tom Barkin

The Path to Full Recovery

Tom Barkin

May 4, 2020

Tom Barkin

President, Federal Reserve Bank of Richmond

The past two months have been painful across the country. We have lost lives. We have lost tens of millions of jobs. We have lost security, connectivity and community.

Multiple states are now in the process of reopening their economies. But, despite unprecedented measures by both the Fed and fiscal authorities, things won’t be returning to normal quickly. As I wrote a few weeks ago, the pace will likely be slow, as businesses and consumers adapt to a world where personal interaction creates health risks.

As the United States navigates the path to recovery, I have been focusing on how much damage has been done and how to minimize the longer-term impact.

The potential of our economy can be described most simply as the size of the workforce multiplied by the productivity of that workforce. In the aftermath of this crisis, both factors face threats.

This virus has led to the closure of schools and day cares, while also challenging traditional forms of elder care. Dual career couples, single parents and care providers face daunting obstacles to balancing work and home responsibilities. Without more support, many risk leaving the workforce. Vulnerable populations such as baby boomers may protect their health by retreating from the labor force too. The great number of service workers dislocated by the pandemic may struggle to move into new careers. And new immigration controls may well reduce immigration’s historic role in helping grow the workforce. In an environment where demographic changes were already shrinking our complement of prime-age workers, these changes could accelerate its decline.

I also worry about productivity. While new protocols for health and social distancing in restaurants, retail and manufacturing operations will likely help boost consumer and employee confidence, there’s little doubt they will also increase costs. Businesses are already redesigning their previously optimized supply chains to refocus on resiliency at the expense of efficiency. And as businesses adapt to the new world, real estate assets are being stranded. More fundamentally, increased debt loads, reduced bank lending capacity and diminished confidence surely will have a meaningful impact on investment, through which much productivity enhancement occurs.

A smaller, less-productive workforce leads to a smaller economy and a less attractive future. What can our country do to mitigate that potential impact?

First, as states plan to restart their economies, it will be important to implement safe, reliable and affordable modifications to current practices. To get people back to work in force, we need schools teaching, day cares operating and elder care models that protect our seniors. At the Richmond Fed, we are engaged in an effort in Virginia to reimagine how child care in particular can be provided at necessary standards.

If we continue living in the shadow of this virus, job retraining will also need to be a focus — targeted toward the large number of low-end service workers displaced by this crisis. Can they be retrained to work in a large infrastructure effort or to provide an in-demand service such as home health care? One bright spot of the current shutdown has been the investment made in online educational delivery. States may find that they can deploy significant online retraining efforts to a broad swath of the unemployed, perhaps even at a very low cost (recognizing the need for equal access to broadband).

And, in the spirit of never wasting a crisis, policymakers need to motivate business investment in new productivity levers. I am reminded that airline kiosk adoption really only took off after the tragedy of 9/11. Perhaps retail self-checkout, food delivery, telehealth and, yes, online education will see similar adoption escalation, as surely online shopping will as well. Perhaps new productivity investments will need some government incentive to restore confidence in an uncertain environment.

It is hard to be optimistic when you are in the depths of a crisis, as we are now. But I’m a big believer in science and its ability to help us meet the challenges ahead. I’m also a big believer in the creative capacity of American workers and businesses. As an economic policymaker, I see the task ahead as providing them with the support they need to unleash their potential.

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