Chicago Fed Insights

Covid-19, Job Automation and Displacement, and Their Impacts on the Labor Force

April 19, 2023

Automation has been replacing or enhancing human labor for centuries now. But between advances in robotics and artificial intelligence and the spur of the Covid-19 pandemic, this seems an especially significant time in machines’ move toward taking over work that humans used to do.

While job automation is a seemingly inexorable process, it is not necessarily an equitable one. Recent research from Federal Reserve Bank of Chicago economists looks at the combination of work automation and Covid and its particular impact on Black and Latino workers, as well as at the lasting after-effects of job displacement.

The Chicago Fed’s Economic Mobility Project hosted a virtual event to spotlight this new work and hear an expert panel expand on the topic. In addition to the Bank’s Kristen Broady and Kristin Butcher, the panelists were MIT economist David Autor, U.S. Chamber of Commerce education and labor executive Allison Dembeck, City Colleges of Chicago chancellor Juan Salgado, and then-president of Jackson State University Thomas Hudson. Kate Bahn, director of labor market policy and chief economist at the Washington Center for Equitable Growth, moderated.

Below are six key ideas from the event, “The Automation of Jobs: Impacts on Workers and Inequality,” held in late February and available for video replay and as a transcript on this page. There’s also a policy brief derived from a paper by Broady, a Chicago Fed senior economist and economic advisor and director of the Bank’s Economic Mobility Project.

1. The impacts of job displacement are immediate and long-term across all demographics, but the likelihood of displacement is higher in less privileged groups.

The shock of job displacement can happen due to technological change, a plant closing or moving, or, indeed, a once-in-a-century pandemic. And when that happens, “it’s very unlikely that you’re going to go out and find a very similar job,” said Chicago Fed vice president and director of microeconomic research Kristin Butcher, citing “Job displacement in the United States by race, education and parental income,” a Brookings Institution paper on the topic she coauthored with Ariel Gelrud Shiro.

Displacement is thought of as the loss of a job that a worker held for a substantial period of time, typically at least two years, and it brings a likely lifetime of lower wages than if that job, and the experience built up in it, had not been lost. “There’s a ginormous—that’s the technical term-- impact of displacement on annual earnings,” Butcher said during the conference. Meanwhile, the risk of displacement, she found, is higher for Black workers than for White non-Hispanic workers, for those without a bachelor’s degree than for those with one, and even for those whose parents had low incomes than for those whose parents had high incomes.

As for the solutions society offers, traditional unemployment insurance, which assumes that what is needed is money to tide you over until you get your job back, doesn’t fit the way job displacement plays out. The same position being available down the road “is not what’s happening when your job leaves you… from something like technological change,” said Butcher.

2. As Covid spread, automation accelerated, and its impact exacerbated pre-existing economic inequities.

Between March and April of 2020, U.S. employment fell by 20.5 million jobs, by far the biggest one-month decline since the Bureau of Labor Statistics has been keeping track, said Broady, explaining her paper, “The Covid-19 Pandemic Spurred Growth in Automation: What Does this Mean for Minority Workers?” The economy began improving and vaccines became available, but Covid variants brought new problems and even those workers who had workplaces to return to often felt “uncomfortable” doing so, she said.

So new work-from-home protocols became one new front of workplace automation, and the technologies that helped people function remotely worked better in job categories at comparatively lower risk of being automated—that is, of being “completed by a computer or machine,” she said. At the same time, “pandemic-related labor shortages and an increasing demand for contactless delivery,” said Broady, put pressure on employers to use machines when possible: robots cleaning airplanes and grocery stores, stores adding more self-checkout kiosks, shoppers shifting to online purchasing, and the like.

With that backdrop in mind, she said, consider the categories of jobs at highest risk of being automated, including “cashiers, construction laborers, secretaries, cooks.” Black and Hispanic workers are overrepresented in 17 of the 30 job categories at such risk, she found. A key to surviving in this coming employment landscape will be to “prepare students and workers to work with automation and not fear being replaced by it,” said Broady.

3. The labor market was tightening even before the pandemic and more so since, and the tightening has been good for lower-wage workers.

David Autor, the Ford Professor of Economics at the Massachusetts Institute of Technology, pointed out that already, before the pandemic, Baby Boomers were starting to retire and immigration numbers and fertility rates were down considerably—all things creating “a need for young, able-bodied workers,” he said.

The labor market has changed in surprising ways since the onset of the pandemic, he said. “In particular, we've seen a very sharp reduction in inequality measured as the ratio of earnings of the 95th percentile worker to the 10th percentile worker. And a real tightening of the labor market… for young workers without college degrees–who have seen wages mostly keeping up with inflation, unlike everyone else. They’re doing a lot more job hopping.”

Autor acknowledged that he was initially “pessimistic” about labor-force prospects during the pandemic, but that he has shifted his thinking. “What the pandemic has taught us is that labor-market competition is very healthy for workers in general, but particularly for low-paid workers,” he said. “Employers are competing with one another fiercely to hire those workers.”

4. Even as it changed some aspects of labor, the pandemic also highlighted existing problems. Case in point: Child care.

Allison Dembeck, vice president of education and labor advocacy and government affairs at the U.S. Chamber of Commerce, noted that the troubles in the child-care sector were only made more obvious during the pandemic. Taking care of other people’s kids was a lower-wage job to begin with, and then it became more dangerous amid the pandemic because it can only be done in person.

But such jobs are hugely important to the development and safety of children—and to their parents being able to work—and “now, people don’t want to do them anymore,” said Dembeck.

So while in some employment sectors “people are seeing the value and the need for finding jobs that they think are fulfilling” and that pay them well, a flip side of that is “the child-care space, where we need to figure out how to handle that,” she said.

5. Periods of high unemployment typically result in people going back to community colleges to build their skill sets. That’s not how the pandemic played out.

“Our students are in many cases the low-wage workers that are trying to up-skill to get into better occupations,” said panelist Juan Salgado, chancellor of City Colleges of Chicago, which serves some 55,000 students at its seven colleges. Yet, “we, like many community colleges, saw a major decrease, in the pandemic, of students going on to college.”

Covid hit this population and their families especially hard and so they temporarily stopped following this traditional path. But recently a rebound has come. “Quite dramatically,” Salgado said, “we saw a 9% increase in student enrollment in the fall. We saw a nearly 15% increase here in the spring. And so we’re seeing the workers coming back for greater skills, which I think is a great sign.”

His institution takes job displacement into account in designing its course offerings, he said. “We’ve oriented all our colleges to the market, to where the growth in demand is for higher-wage opportunities,” said Salgado. “If you look at the list of occupations that are least likely to be displaced [by automation], we’re right there. … We’re on both sides. Our students are in the occupations that are going to probably get displaced, and our students are moving towards those other occupations.”

6. Educational institutions should consider the potential for vocational automation and displacement as they plan the courses and hands-on training they offer.

“It’s up to all institutions to try to take a peek into the future as far as possible and calibrate yourselves to what your students need, especially if you're servicing a minority population, such as Jackson State” as a Historically Black College or University (HBCU), said Thomas Hudson, president of the Mississippi school at the time of the event.

“I know as an HBCU, we pride ourselves on starting the type of programs and really emphasizing the type of programs, whether they’re STEM, whether they’re business,” that will have a lower possibility of being automated, Hudson said. One he mentioned was a recently started supply chain management program in public health.

Salgado, from City Colleges of Chicago, agreed. “We’ve oriented ourselves to the areas of growth in the marketplace—not just growth, but where growth meets a living wage, where growth meets career opportunity,” he said. “And so that’s number one. Number two is, when you’re in regular communication with employers, backward mapping that curriculum, you can see the changes coming, whether it’s in advanced manufacturing or logistics or any one of those fields that are adapting very, very quickly.”

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The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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