by Gary Alexander

August 31, 2021

Will traditional labor soon be a thing of the past? It’s something to think about over Labor Day weekend.

In honor of the coming Labor Day weekend, here are four new realities about work in the Covid-era.

#1: Labor Productivity is Rising Again

In the most recent Labor Department release (August 10, 2021), nonfarm business sector labor productivity increased 2.3% in the second quarter of 2021, as output increased 7.9% and hours worked grew 5.5%. (Productivity is the difference between the two rates, or 1.079 divided by 1.055 = 1.0227, or 2.27%).

As James Manyika and Michael Spence point out in “A Better Boom: How to Capture the Pandemic’s Productivity Potential” (Foreign Affairs, July/August 2021), The COVID pandemic “spurred businesses in practically every sector to radically rethink their operations” by adopting “new digital technologies that enabled them to continue doing business even under severe coronavirus restrictions.”

“Surprising as it may seem,” they continue, “out of the deepest economic crisis since World War II could come a new era of productivity gains and prosperity.” They compared this boom to the advent of the Internet and office computers from 1995 to 2005, when productivity grew at an annualized rate of 2.5% in the U.S. (i.e., output rose 3.4% per year on only 0.9% more hours worked). I remember that time well. In the newsletter industry, we had to re-invent our means of delivery, from paper in the mail to instantaneous electronic delivery, and more customer service. Today’s work-at-home mandate is equally revolutionary.

Manufacturing Sector Labor Productivity Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Due to Europe’s relatively closed economy – where it is virtually impossible to fire a worker – the productivity boom of 1995-2005 never occurred – and it is not happening in the post-Covid era, either.

#2-New Realities Spawn New Business Ideas

Sadly, some small businesses will die – including a lot of restaurants; we will need to learn how to cook – but more businesses that fit the new realities will spring up. This is what economist Joseph Schumpeter called “Creative Destruction.” Amazingly enough, in the pandemic year of 2020, according to Manyika and Spence in Foreign Affairs, “24% more new businesses were created in the United States than in 2019. Europe lagged behind the United States on this metric with new business creation staying roughly flat in France, Germany and the UK and declining by more than 15% in Italy and Spain.”

Firm Foundations of New Businesses Charts

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In time, America’s greater flexibility and productivity translates to fatter corporate profits: U.S. corporate profits hit a record high last quarter, despite supply chain disruptions, a labor shortage and new COVID challenges. Profits from current production grew $234.5 billion to a record $2.8 trillion, a 9.2% quarterly rise after rising 5.1% in the first quarter. Pre-tax profits as a share of GDP, a proxy for profit margin, rose 0.7 percentage points to 12.3%, the highest level since 2014. After-tax profits rose at a 12.8% pace, and profits were up an eye-popping 69.3% from a year ago, since Q2’2020 marked the nadir of the recession.

#3-Overly Generous Jobless Checks Backfired

The Biden Administration wanted to keep sending extra $300 weekly checks (on top of state checks, food stamps and an array of other benefits) to out-of-work citizens in all 50 states after nearly a year of $600 weekly bonus checks. Most Republican governors vetoed the extra $300 in May or June, while Democrat governors accepted the unearned largesse, so a real-life 50-state experiment was underway during July.

The verdict: A wide economic gap between states run by Democrats and those run by Republicans.

In July the national jobless rate was 5.4%, but in Democrat-led states it was twice the rate as in red states:

Highest July Jobless Rates Lowest July Jobless Rates
 (All Democrat Governors)  (All Republican Governors)
  Nevada 7.7%   Nebraska 2.3%
  California 7.6%   Utah 2.6%
  New York 7.6%   South Dakota 2.9%
  New Mexico 7.6%   New Hampshire 2.9%
  Connecticut 7.3%   Idaho 3.0%
  New Jersey 7.3%   Vermont 3.0%
  Hawaii 7.3%   Alabama 3.2%
  Illinois 7.1%   Oklahoma 3.5%
Sources: U.S. Bureau of Labor Statistics for July 2021: Unemployment Rates for States (
Wikipedia for Governors by Party: List of current United States governors – Wikipedia

Nearly all states with Republican governors stopped the $300 unemployment bonus by June 30, and they did not impose excessive lockdowns during the pandemic. Republican-run states also tend to have lower taxes and better-run state finances. As a result, the latest 2020 census has shown that more people are moving out of high tax states to live in lower-tax states. Many businesses are making the same move.

United States Job Openings Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The obvious solution would be for some blue states to learn some policy lessons and imitate the success of the red states, but political pride may be too high a hurdle. As it stands, the $300 checks are set to run out on Labor Day, September 6, so we may see unemployment rates suddenly drop in blue states, too.

#4: Worker Shortages Will Likely Continue

The unnecessarily-long jobless checks were only one federal barrier to work. Even after those checks run out next weekend, many states will still suffer from mandated lockdowns and an emerging trend toward mandated vaccination requirements in some jobs. In our corner of the country, the Washington State Ferry system is requiring all employees to be vaccinated, so workers are quitting en masse in an already short staff, while the remainder are threatening strikes, which could isolate 15,000 San Juan Islanders.

Another danger in mandating vaccinations is that employees could sue employers if the vaccine causes secondary reactions. Teachers, police, medical staff, military, fire/rescue, pilots, cabin crew and many other professions are quitting over mandates. These are skilled fields that are hard to re-fill because of credentialing. It’s easy to find other work right now. This is going to become very serious in short order.

Total Unfilled United States Job Vacancies Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Ten million job openings were still going begging as of June 30. That figure dipped a bit in July when the free paycheck dole ended in many states, but payroll jobs still remain 5.7 million below the pre-pandemic peak, so it’s hard to believe that employers won’t be flexible about job requirements, including vaccine mandates. Still, the trend in the Biden Administration and the Democratically controlled Congress is to handcuff businesses, empower labor and send checks to those wishing to sit out the rest of the pandemic.

Only a change in Congress in 2022 will alter those trends, but I sense voter outrage may emerge soon.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

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About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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