The 'jobless recovery' after the financial crisis is going to look like a labour bonanza compared with what's coming next

David Rosenberg: Of the near 10 million U.S. workers still out of a job in the pandemic, half will be replaced by machines

The pandemic’s impact in all aspects, from the government-mandated shutdowns, the infections themselves and the impact on economic behavior, as well as the seemingly permanent loss of employment, have led to a massive reorganization of the labour force. Companies have learned to adapt and in so doing have shifted their production inputs from labour to capital. We anticipate this trend will not only continue in the near term, but accelerate through the post-pandemic recovery phase.

Increased automation and declining labour power (manifesting themselves in a steadily declining labour share of income) have been the hallmarks of the past 30 years, and while new U.S. President Joe Biden will try to curb this move with the tax system, he will not be able to reverse it — which will come with obvious social implications because permanent labour displacement has become a defining feature of this crisis.


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Robots don’t get infectious diseases

This pattern is set to accelerate as companies look to further automate business processes, taking advantage of new technologies to boost margins and to mitigate future pandemic risks (robots don’t get infectious diseases). This process is already in motion, with the most recent example coming from the Pennsylvania Turnpike moving up its mass automation campaign.

Short bursts of rising output per worker are quite common after recessions. This phenomenon is a byproduct of the fact that the more productive firms tend to be the ones that survive downturns and more productive workers are those who remain employed. But what’s important here is all of these short-term productivity boosts have happened in the context of a broader trend of less labour compensation.

Over the past 40 years, labour’s share of income (a measure of how much is paid out to workers as a share of everything that is produced) has been on a secular decline. However, what started out as a gradual drawdown from the 1960s through the 1990s turned into a complete collapse after the tech-induced productivity boom of the 1990s. Since the internet revolution, companies have adopted business strategies and technologies that have allowed them to capture record shares of the value-add generated by the economy.

This process never did abate, not even during the tech wreck, and is now in the process of reaccelerating. Of the near-10 million low-skilled U.S. workers still out of a job during the pandemic, we believe at least half of them will end up being displaced by technology going forward. The one thing most businesses, especially in the service sector, realized this past year is how to do the same or more with less.

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The one thing most businesses, especially in the service sector, realized this past year is how to do the same or more with less

The 3.4-percentage-point decline in labour’s share of income (the average after the past two recessions) is likely to be repeated yet again and we don’t believe the Democrats can alter that reality — the most they can do is use fiscal policy to attempt to reduce existing extreme inequalities via income redistribution.

As we emerge from this crisis, we know there will be further bouts of productivity gains, but we also know that the future will not be one where the burden of automation is evenly shared across industries. The Brookings Institute already conducted an analysis in 2019, using occupational level data, to determine which industries were most prone to automation. Top of the list, the accommodation and food services sector that has been battered by massive shutdowns with employment down three million in the U.S. since the onset of the pandemic (an epic 21-per-cent year-over-year contraction).

The cruel fact is that the most affected industry featuring some of the lowest paid workers in the economy is also likely to be the one most affected by automation due to the ease of robots and other machines in replicating their tasks and because businesses are seeking to mitigate future pandemic risks, let alone save on the labour cost bill (key for low-margin businesses).

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The bottom line: labour’s share of income is going to continue its downward trend after the current crisis ends. Aside from the profit incentive that has always existed to motivate automation, this crisis has highlighted the pandemic risks associated with relying on labour availability. Industries that employed millions of people pre-pandemic, such as accommodation and food service, as well as retailers, will take advantage of the technological advances in the coming years, suggesting that the so-called “jobless recovery” we saw after the Great Financial Crisis might end up proving to have been an absolute bonanza in retrospect.

Join me on Webcast with Dave! I will be hosting Charles Schwab’s chief investment strategist, Liz Ann Sonders, as my guest on March 2. Learn more on my

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