How low-wage work could get even worse in a post-pandemic future

Key Points
  • More than 100 million low-wage workers globally may need to find new jobs by 2030, according to a recent forecast from McKinsey & Company which sees a rising threat of automation post-Covid, especially in advanced economies.
  • This would mark a major shift from recent decades in which the biggest jobs losses in countries like the U.S. were concentrated in middle-income manufacturing and professional labor markets.
  • While post-recession periods are typically marked by cost-cutting, post-pandemic unemployment may be rooted in permanent labor market shifts.
A worker uses the screen of 'Tokyo', a robot placed at the entrance of the Only You hotel in Atocha on March 17, 2021 in Madrid, Spain, part of a study on the use of robotics in hotel operations carried out by the Hotel Technological Institute.
Europa Press News | Europa Press | Getty Images

The failure of a federal $15 minimum wage to protect its place in the Biden stimulus package will not be the only headwind for low-wage workers as advanced economies like the U.S. emerge from the Covid recession.

More than 100 million low-wage workers globally will need to find a different occupation by 2030, according to a recent McKinsey & Company forecast, with the situation worse in the largest economies, and signalling a labor market shift that would replace decades during which job losses have been concentrated in the middle-income positions.

Some factors at work in the low-wage worker outlook are not new. Recessions result in job losses, and some of those jobs never come back even as the global economy recovers. While the Covid recession is a unique one, research from past economic downturns back to the 1980s found that 88% of job losses in post-recession recoveries in the United States were those involving repetitive tasks. This time, the pace of automation may accelerate even more as a result of the pandemic, and specifically at the low-end of wages.

The McKinsey report cited one data point that emerged during Covid-19 which it sees as cause for alarm. Robot production figures from China had reached back above pre-pandemic levels by June 2020 as automation in sectors including manufacturing, warehouses, grocery stores and call centers pointed to a potential future in which more human roles are displaced based on physical proximity factors and new safety measures. 

It bodes poorly, unless we get people onto better trajectories.
Susan Lund, McKinsey & Company partner

Globally, McKinsey estimates that roughly 30% of the labor force is in low-wage jobs (the bottom third in annual wages), but these workers may comprise anywhere from 43% to 64% of workers displaced across countries, with heavy impact on workers in retail, food service, and hospitality. In European nations including France, Germany, and Spain, low-wage workers make up roughly 47% of the workforce and may account for 55% to 60% of workers displaced in a post-Covid economy.

"It bodes poorly, unless we get people onto better trajectories," said Susan Lund, McKinsey partner and a leader of the McKinsey Global Institute. One of the factors that concerns Lund the most is that cost-cutting may be less of a motivator in future job losses than the desire to redesign processes. "Five years ago people were saying AI reduces costs, but now it is revenue growth," she said. "For any retailer, e-commerce isn't about saving money, it is about how customers want to shop."

McKinsey estimates that 4.3 million jobs may disappear over the next decade in customer service and food service roles compared to before the pandemic, and the 760,000 jobs added in transportation and last-mile delivery will only partially offset those losses. Of the more than 17 million workers in the U.S. who may need to change jobs, 14.9 million may need to find work in new occupational categories.

With 3.2 million fewer jobs expected in customer sales, 1.1 million less in food service, and 800,000 expected to be added in last-mile delivery, Lund said Uber and the gig economy will serve a role, but not offer a solution.

"We will have more Uber jobs and that's become a safety net. People find what to do, a way to live, when they have to put together their jobs, but that is the problem," said Marcela Escobari, senior fellow at The Brookings Institution.

Low-pay workers struggle to move up

The traditional movements among low-wage workers when their sectors decline is between similar-paying jobs, but even that labor market shuffle may disappear. Historically what has tended to happen is a food service worker becoming a retail cashier or hotel worker. 

"The U.S. is at a turning point if we can't help people make these transitions," Lund said.

With many low-wage sectors employing women and minorities, failure to find new occupations also will counteract broader efforts to reduce inequality. Labor force participation rates are going down and it is disproportionately women. "The worst-case scenario is in 10 years people who lost jobs in the pandemic never come back," she added.

A recent study from The Brookings Institution finds that the typical ebb and flow in the labor market between lost jobs and newly created ones in growing sectors that pick up displaced workers is narrowing.

"Amazon can't hire fast enough ... but what's growing is not absorbing what's shrinking. This recovery, it will look different," Escobari said.

The low-wage work "clusters," in which workers circle between similar jobs rather than move up in pay or acquire new skills, has hardened in recent decades.

Automation is a factor, but it has been a factor for a long time, so Brookings' takes a broader view of what leads workers to get "stuck" rather than make a transition successfully.

Among the existing job market trends that have contributed to this scenario are work being outsourced to a third-party vendor, or set up as contract work, cases in which there is no training responsibility on the part of the employer and less opportunity to move up the ladder.

"The ways to escape low-wage work have become very difficult," Escobari said.

Automation and quality jobs

Jessie Hammerling, lead researcher for the Technology and Work Program at the UC Berkeley Labor Center, said it is wise to be cautious with assumptions about automation. "Pre- and post-Covid, there are reasons to think automation could speed up, but there is a lot of risk of overstating the extent to which it might displace jobs," Hammerling said. "New technology is expensive and risky, especially right now, so there is a push and pull within sectors."

The fear of automation displacing a vast number of jobs should be less of a concern than the quality of jobs being created by the economy. "What we've been seeing is tech adoption, whether automation based or not," Hammerling said.

Major corporations and labor policy experts have been focused on the need to retrain and re-skill — or "upskill" — America's workers for a new tech-driven economy, but that idea is no silver bullet.

"All the efforts at Amazon and Walmart and IBM are great," said Escobari, "but we would need to see a dramatic scaling of it. ... There were 53 million low-wage workers in the U.S. counted before the pandemic and they only employ a small percentage of the workforce."

Amazon has added more jobs than any company in history during the pandemic, 427,300 employees in a 10-month period, bringing its global workforce to a little over 1.2 million.

"We've always known to work in advanced economies like the U.S. you need increasing skills and the pandemic will accelerate that," Lund said.

Congress should create reskilling and education program to fix economy: Danielle DiMartino Booth
Congress should create reskilling, education program: Danielle DiMartino Booth

In the sectors where job growth is forecast to be high, such as health care, the biggest issue is job quality and not number of jobs that will be created. In the U.S., the Bureau of Labor Statistics forecasts that of the 10 fastest-growing jobs in the decade through 2029, home health care aide positions will add by far the most jobs (over 1.1 million) and by far be the worst-paid, with current median wages at roughly $25,000 a year. This job will add 10 times as many positions as every other top job category over the next decade, but its current wage level is less than half of the next two lowest-paid growing job categories.

Health care is one of the clusters where transitions are made, but the sector also has a high dispersion between low-paying jobs and high-paying jobs, shutting off workers, in particular workers of color, from upward mobility, Brookings research shows.

"Lots of crappy [jobs] and good jobs, and people do transition, so it is healthy, but ... there are places where workers bottleneck," Escobari said.

Higher-paid health care careers like nurse practitioner and occupational therapy assistant are forecast to grow faster on a percentage basis than home health care aide, but will offer the economy one-tenth the jobs through 2029, according to BLS data.   

"Care work, which is really growing, has been undervalued," said Hammerling.

Lack of work mobility

The role of companies in reskilling some of the workforce is a certainty because they will not be able to externally hire all of the talent that they will need, and in many cases, it is more efficient and productive to keep workers already in the company culture and who have proven to be good performers. Programs like the Walmart Academy are "a great motivator" within communities with the option for people in sales roles to move up to supply chain management and IT, but many companies will not be in a position to retrain a large part of their workforce because unlike the dominant market giants experiencing fast growth, their footprint will be smaller.

"That's where education and the government come in," Escobari said. "I'm not saying more people should go to college, but they need skills beyond a high school degree, a vocational or two-year degree."

According to Brookings data, less than 60% of workers escape low-wage clusters over the course of 10 years. Workers have only a 2% chance to escape low-wage clusters after their 10th year of low-wage work.

The idea you enter in these low-wage jobs and move up is a fantasy. Lots of people get stuck.
Marcela Escobari, senior fellow at The Brookings Institution

UC Berkeley Labor Center work on industries like trucking show how risks like automation and quality of low-wage jobs intersect. It noted in a recent report that the $740-billion-a-year U.S. trucking industry will be an early adopter of self-driving technology and autonomous trucks could replace as many as 294,000 long-distance drivers. That may in turn create many other freight jobs, but in local driving and last-mile delivery jobs — i.e. lower quality jobs —which feature low wages and few if any worker protections without greater government involvement mandating better conditions.

"Retraining is a waste if it doesn't factor in how to shore up the labor market and create better jobs that really value workers," Hammerling said. "Training isn't sufficient to solve this."

The fight for the $15 minimum wage

With all of these issues coming to the world of low-wage work, the battle over the federal minimum wage can seem like a skirmish in a larger war, but raising the floor for wages is an important step in shoring up the floor for the bottom income bracket of the economy, labor experts said. 

Employers are reorganizing the workplace in response to Covid-specific changes and that may accelerate or exacerbate job pressures, but it is not a "blank slate, a whole new situation," in Hammerling's view. "These issues were present before. ... concerns about job quality, deteriorating and declining opportunities for low-wage workers. ... It is not a whole new world we are stepping into."

While experts debate what the minimum wage should be regionally and at what rate of increase it should be introduced, the push for a higher minimum wage — combined with investment in working training — is important to protecting the most-vulnerable workers as the global economy recovers from the pandemic.

"The idea you enter in these low-wage jobs and move up is a fantasy," Escobari said. "Lots of people get stuck and until we can solve the problem of people getting stuck lifting wages so people can make a living wage is important. They don't leave these jobs at 22, they still have them at 45."

Correction: Less than 60% of workers escape low-wage clusters over the course of 10 years; after the 10th year of work, that declines to 2%.