We cannot talk about capitalism in its different forms without mentioning which of them protects workers the most. We are not going to work with hypotheticals but with evidence obtained from the economic crisis caused by the COVID-19 pandemic.
The virus took a few months to spread massively from Wuhan to the United States, but once it did, coupled with a set of misguided health policies by former President Donald Trump, the labor market exploded. By April 2020, 36 million Americans had lost their jobs, reverting to numbers from ten years ago. After a previous period when the unemployment rate had remained close to 3.5%, by April, that figure was around 14.7%[215]. While unemployment rose in many countries, it was not as drastic anywhere as in the United States. In Germany, in fact, during the same period, unemployment did not even rise by 1%[216].
While the regulatory framework in the United States allows hiring and firing people easily, this is not the case in many other regions of the world. It is not the case in Argentina, nor is it the case in the member countries of the European Union, although both systems have their own set of differences. Additionally, while former President Donald Trump downplayed the value of COVID-19, the European Union countries implemented a set of fiscal stimulus measures to maintain jobs. Just as Argentina implemented the Emergency Family Income (IFE), Germany implemented the Kurzarbeit program, which acts as social insurance by allowing companies to reduce working hours instead of laying off employees. Thus, under this program, companies continue to pay 100% of the hours worked by their employees, while the government pays the equivalent of 60% of the wages for the hours not worked. In this way, an employee can suffer a 10% salary drop in exchange for a 30% reduction in their working hours. This German program typically lasts a maximum of six consecutive months for companies going through a tough time, making Kurzarbeit a fundamental tool for dealing with economic crises. This allows the purchasing power of the working class to be protected during a recession, preventing a drop in the consumption of goods and services. This is only possible if workers keep their jobs, as by not losing them, they have less incentive to save in their personal emergency funds. This also presents a huge advantage for companies, which can retain their human capital, avoiding the costs in money and time of firing someone, then hiring someone else to replace them once the economy starts growing again and retraining that person to adapt to the company’s needs[217]. Without a doubt, the pandemic has highlighted the importance of the nation-state. In the words of John Micklethwait and Adrian Wooldridge, this has not only revitalized its power, which is evident when we see the large number of renowned companies that turned to their states for help, but it has also demonstrated the vital role they play in their citizens’ lives, in accessing health and maintaining a healthy economy. Literally, having an efficient and well-organized government can be the difference between life and death.
While the economy will recover, and the world’s rich got richer during the pandemic, as Forbes noted[218], many jobs were replaced by automation due to initial closures and health measures. I cannot venture to say that someone who lost their job in 2020 will never find another job in their life, but I can say with certainty that the automation process was greatly accelerated by the pandemic, and this will reduce the number of available jobs requiring little experience in the coming years. Automation processes are not usually linear but come in waves, generally during tough economic times, when company profits are reduced, and the relative cost per worker becomes more important, as Schwab notes in his book “Stakeholder capitalism.” It is under these circumstances that employers are more tempted to reduce less specialized jobs in favor of automation to increase productivity and reduce costs. It is very likely that low-paid workers in routine industries such as manufacturing, transportation services, or food processing will be the most affected in the short term. This will only add fuel to the fire of internal inequity in countries, increasing the gap between those with high salaries and those who can only find work in low-paying industries that are on the brink of further automation.
In fact, one of the major mistakes, according to Schwab, is thinking that the pandemic helped put us all on the same level. The available evidence shows the opposite. This pandemic has only exacerbated pre-existing conditions of inequality around the world. It did not group people on the same level, whether in health, economy, or psychology. With the AI revolution, the same thing will happen if we do not first create robust social safety nets. Artificial Intelligence, just like the pandemic, can increase these inequalities. A quick example provided by Professor Schwab concerns the condition of the African American population in the United States, who, for a myriad of historical reasons, face higher levels of poverty, unemployment, and precarious housing situations, making them more vulnerable to pre-existing medical conditions such as obesity, coronary diseases, or diabetes, placing them in a more disadvantaged position to face COVID-19 from the outset.
Another effect of the pandemic, which invites us to think about the near future when AI arrives in our factories and offices, is that it exposed the hypocrisy of our social contract. In Argentina, like in many countries, people went out to their balconies or the front doors of their houses during the first weeks of the pandemic to express their support for medical and essential personnel with applause. Soon after, we all acted surprised or outraged when we found out what their salaries were. That is the society we live in. We live in a society that economically values less the group of individuals it needs the most, not just during a pandemic that has no comparison in the new millennium. Essential personnel, from doctors to food plant workers and even the people who deliver our food and medicines on bicycles, put in their effort to take care of us and keep the economy as active as possible. Meanwhile, we as a society agreed to continue using their services in exchange for poor pay. We gave them applause, medals, and honors. Dignity with a fair wage? No. These people are some of the pillars of society for developing a consumer economy, and yet we refuse to recognize their economic value. As if that were not enough, many of them are even at risk of losing their jobs due to the already mentioned and impending mass automation. How many of these employees pass as “self-employed” without accessing rights we consider basic? How many of them work per task completed, like freelancers, without receiving compensation for sickness or paid vacations? The power, as a consumer, is yours. Use it wisely.
[215] Unemployment rate rises to record high 14.7 percent in April 2020. U.S. Bureau of Labor Statistics. (2020). Retrieved June 16, 2021, from https://www.bls.gov/opub/ted/2020/unemployment-rate-rises-to-record-high-14-point-7-percent-in-april-2020.htm.
[216] Bauer A. & Weber E. (2021) Covid-19: how much unemployment was caused by the shutdown in Germany? Applied Economics Letters, 28:12, 1053-1058, DOI:10.1080/13504851.2020.1789544.
[217] Kurzarbeit: Germany’s short-time work benefit. International Monetary Fund. (2020). Retrieved December 19, 2021, from https://www.imf.org/en/News/Articles/2020/06/11/na061120-kurzarbeit-germanys-short-time-work-benefit.
[218] Chandler, S. (2020). Coronavirus Is Forcing Companies To Speed Up Automation, For Better And For Worse. Forbes. Retrieved October 6, 2020, from https://www.forbes.com/sites/simonchandler/2020/05/12/coronavirus-is-forcing-companies-to-speed-up-automation-for-better-and-for-worse/?sh=225765925906.