Before the Covid-19 pandemic, several macro-economic trends related to talent availability and skill requirements were already underway and expected to be realized over the next 10-15 years. At the start of 2020, the U.S. was experiencing the lowest unemployment rates since 2000 at just more than 4 percent, according to data from the Bureau of Labor Statistics (BLS), driven by a labor demand that was outpacing supply, particularly within skilled positions. Key factors contributing to this include:
• A decline in workforce participation: This may be due to trends like the aging population and young adults staying in school longer prior to joining the workforce, according BLS data.
• Insufficient technical graduate pipeline: The rapidly changing pace of technology is driving demand for hundreds of thousands of tech workers, but the U.S. education system has been unable to produce enough graduates with those skills up to this point. It is estimated that 58 percent of new jobs in STEM between 2016 and 2026 will be in computing, but only 35 percent of U.S. high schools offer computer science, and less than 10 percent of STEM graduates in 2017 studied computer science.*
• Increase in automation: As companies continue to scale robotic process automation (RPA) and intelligent automation (IA) to enterprise-level solutions, a shift in job requirements for relevant positions and a need for significant upskilling will be required to keep pace with the talent needs of the impacted industry.
• Digitization of the workforce: The number of occupations defined as having “high digital content,” meaning they require knowledge of and skill working with computers/electronics, has tripled from 2002 to 2016, according to the Brookings Institute.
• Tech talent geographic concentrations: The supply of technically skilled workers has historically been concentrated in a handful of cities that have created technology ecosystems. The top 10 Metropolitan Statistical Areas (MSA) by tech employment (which include cities such as New York, Los Angeles, and San Francisco) employ one in three new tech workers in the U.S., and six MSAs had tech employee concentrations that were more than double the national average, according to CompTIA’s Cyberstates 2018 workforce report.
Impacts Across Value Chains
Many of the above factors have been further accelerated and magnified following months of operating within the pandemic environment. Automation within manufacturing, R&D and rapid prototyping appears to be happening at a record pace as companies strive to be responsive to the needs born out of the pandemic, while ensuring a safe and healthy operating environment. Furthermore, as companies are looking ahead to a post-pandemic world, it is likely that the shifts we’re experiencing now will dramatically change how business is conducted in the future, with varying impact across the value chain.
• Office: Existing corporate office spaces are expected to undergo a transition in the post-pandemic environment. Organizations operating in corporate offices can evaluate the potential for a permanent transition to remote work, or if a hybrid approach may be best suited for their needs, with select employees coming back to the office. Additional considerations include rethinking the office’s physical space requirements and opportunities to reduce and repurpose office space, as well as renegotiating leases. Corporate leaders can also consider longer-term deployment implications, including potentially rebalancing footprints between urban core and suburban locations to mitigate any future issues with high-density facilities, such as elevator capacities and multi-tenancy.
• Manufacturing: The Covid-19 pandemic has demonstrated a distinct need for production facilities to be agile; practices and facilities that can easily pivot and flex to avoid significant disruption to their supply chain or loss of productivity within their workforce will win out. Companies are taking steps to enable enterprise footprint resiliency and decentralize their manufacturing capabilities to multiple regional facilities to reduce dependency on a single geography and readily shift sourcing and production to less impacted locations.
• Distribution and logistics centers: Distribution and logistics centers are becoming increasingly important as consumers have adopted new purchasing habits during the pandemic. The mandated shutdown of non-essential physical stores accelerated the shift to online shopping platforms. Moving forward, the prioritization of e-commerce over in-store purchases is likely to require organizations reliant on distribution and logistics centers to evaluate their facilities networks and confirm that their facility locations are optimized to mitigate business disruption impacts and ensure efficient delivery.
Impacts Across Industries
The impact of the Covid-19 pandemic and the resulting economic downturn will vary across industries, in some instances causing a slowdown whilst accelerating growth in others. Additionally, factors such as changing consumer preferences, distribution channels, supply chain realignment and government policies and regulations will also impact industry sectors. While the effects of Covid-19 are far-reaching, four select industries offer representative examples of those that are expected to thrive:
• Food and agribusiness: In the early days of Covid-19, consumer behavior shifted towards a tendency for stockpiling, leading to increased consumption of food and household products. In the long-term, the need for food security may drive many countries to seek out a level of sufficiency in local food production as well as supply chain resiliency. In the U.S., this may lead to the installation of additional capacity in existing food processing operations to meet demand as well as growth of niche segments that make use of agriculture products previously exported in large amounts, such as alternative proteins from soybeans. Additional factors, namely changing consumer preferences, increased market size, and a shift in where food is being consumed—at-home versus out-of-home consumption—will also drive growth in segments of the food value chain. Conversely, an economic downturn caused by the pandemic may create headwinds that limit growth in the food industry. For example, with a lower disposable income and an increased sensitivity to prices, consumers may seek lower-cost food options.
• Life Sciences: The Covid-19 pandemic has significantly disrupted the global drug supply chain, resulting in an increased interest in drug production self-sufficiency around the world. Along with drug production, a short- to mid-term increase in demand for medical supplies related to the treatment and prevention of Covid-19 will likely lead to a boost in manufacturing activity around personal protective equipment (PPE), ventilators and pumps. However, the decrease in elective procedures has impacted producers of products such as surgical supplies, orthopedic implants and cardiovascular devices. In the long-term, vaccine, active pharmaceutical ingredients and drug substances for established and mature products, and testing reagents production are areas within the broader life sciences industry that appear to be primed for growth. Segments such as remote-health (portable imaging and cardiac equipment) and in-home care (chronic disease treatment and management) are also likely to experience accelerating growth in response to the pandemic. This growth will, in part, be driven by government policies that aim to improve supply chain resiliency. Similar to the food industry, an economic downturn caused by the pandemic may create headwinds for the life sciences industry, as a potential loss of jobs may lead to a reduction in health insurance coverage.
Cybersecurity: The pandemic, as well as the resulting office and school closures, has led to an increase in remote working and learning options. This outcome may require an increase in, and the reallocation of IT resources to address changing cybersecurity needs. For example, organizations may have to make significant upgrades to VPN services strained by remote working and learning. Additionally, the increased collection of personal information for health and unemployment benefits may have led to an uptick in phishing activity during the pandemic that has been cited by the European Union Agency for Cybersecurity.
In the short term, there may need to be a reallocation of resources to address the immediate cybersecurity needs of a post-pandemic world. Longer-term considerations will likely include addressing the increased demand for cloud capacity.
• Semiconductor Production: The Covid-19 pandemic may lead to a realignment of the supply chains for hardware required to support cybersecurity infrastructure. For example, in response to national security concerns, two new pieces of bipartisan legislation have been introduced by the U.S. Congress to boost microelectronics production capacity in the U.S. The Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act was introduced in June 2020 and seeks to increase federal incentives to stimulate advanced chip manufacturing, enable cutting-edge research and development, secure the supply chain and bring greater transparency to the microelectronics ecosystem. The second bill, the American Foundries Act, seeks to authorize the Departments of Commerce and Defense to award grants for the creation and expansion of microelectronics facilities, as well as R&D funding through various government agencies. As a result of these proposed bills and increased government interest in local semiconductor production, there appears to be an increased interest in locating new wafer fab production facilities in the U.S.
The green economy may also gain momentum post-pandemic, benefiting sectors such as renewable energy, sustainable packaging and battery technologies.
STATE AND LOCAL GOVERNMENT RESPONSE
The COVID-19 pandemic is also impacting how states and local governments are supporting business in light of the accelerated labor and talent changes. With the increasing number of remote workers, many states have issued or revised economic development-related policies that take the remote employees into account for incentives eligibility requirements. For example:
• Virginia’s new statutory language enables telework positions that are held by Virginia residents to be eligible when offering performance-based economic development incentives for new, competitive site-selection projects.
• The new employment thresholds in Nebraska are determined by utilizing the number of hours worked, including the hours worked under “Work from Home Arrangements,” whereas, historically, only hours worked while at a project location qualified.
Other states are providing capital assistance to help companies during the pandemic. For example, Ohio’s Workforce Retention Loan Program provides qualifying JobsOhio companies unsecured, forgivable, interest-free loans, allowing monthly payroll draws to help maintain employment levels during the pandemic.
Some states are offering new programs and incentives to create new businesses and enhance existing businesses that are in high demand due to the pandemic. For example, Georgia has added an incremental incentive for businesses that manufacture PPE and hand sanitizer—these businesses can claim an additional $1,250 per job per year for five years under the Job Tax Credits Act.
Increasingly, states and local governments have come to realize that budgetary constraints are not necessarily germane as incentivized new businesses will yield tax revenues that can provide the budget for the incremental incentives. This trend could indicate limited material changes to traditional programs and could accelerate the development of new policies and discretionary incentives, such as the Good Jobs for Michigan and the More Jobs for Marylanders programs.
The pandemic has created a new normal that will have a lasting impact on companies, geographies, and economic development. Organizations will need to evolve their talent strategies to address changing skill requirements and shortages due to increased automation, geographic dispersion of permanent and remote workers and the evolution and preservation of corporate culture. Additionally, companies will have to evaluate whether the current trend of workers moving from dense urban areas to smaller cities is a long-term reality or just a short-term reaction to the pandemic. The likely implication is the adoption of new regional hub and spoke deployment models. State and local economic developers will likely have to evolve their investment attraction strategies and incentives to include an increased emphasis on capacity building to attract skilled workers that may work for multiple companies under job sharing/crowdsourcing/remote arrangements. Even though all of these trends were occurring prior to the pandemic, the inevitable acceleration will make planning and flexibility paramount for market participants to thrive.
*Source: U.S. Bureau of Labor Statistics, Code.org’s Advocacy Coalition’s 2018 State of Computer Science Education, U.S. Department of Education’s National Center for Education Statistics
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