The wage gap is only going to get worse after the pandemic

Even as the U.S. economy expands, the post-pandemic outlook for low-wage workers has become significantly worse than it was before the pandemic. The effect is so large that it’s a looming problem not just for those workers, but also for the larger society and the economy. At the same time, high-wage workers face an even brighter future than they did pre-pandemic.

Those findings are among the most significant in the McKinsey Global Institute’s eye-opening new report, The Future of Work After COVID-19, released today. It updates MGI’s pre-pandemic assessment of labor market changes over the rest of the decade in the U.S., China, France, Germany, India, Japan, Spain, and the U.K.—most of which can expect changes broadly similar to those in the United States.

The stakes are high. “If we don’t solve the retraining problem, we’re likely to see people dropping out of the labor force, with lower overall participation, rising inequality, and lots of negative consequences,” says Susan Lund, a McKinsey partner and Ph.D. economist who co-led the research.

The big underlying factor is the pandemic’s powerful acceleration of three preexisting trends:

  • The expansion of remote work, which “may reduce demand for mass transit, restaurants, and retail in urban centers,” the report says.
  • The growth of e-commerce and the “delivery economy,” which “grew two to five times faster in 2020 than before the pandemic.” It’s disrupting jobs in travel and leisure as well as in restaurants and retail.
  • Employers’ increasing use of automation and A.I. In factories, warehouses, stores, offices, and elsewhere, robots and process automation have helped companies manage through the pandemic.

All those trends were already eliminating more low-wage jobs than high-wage jobs, and the pandemic has turbocharged the effect. For example, before the pandemic, MGI’s scenario envisaged 37 million U.S. workers displaced by automation in this decade; the new post-pandemic scenario foresees 45 million displaced. The total number of jobs should increase, but “nearly all net job growth over the next decade is projected to be in high-wage occupations,” the report finds.

For most of those displaced low-wage workers, there’s only one way forward: They “will need to find available jobs in higher wage brackets that require very different skills.” That’s a fundamental change. “Before the pandemic, two-thirds of people who lost a low-wage job could get another low-wage job, and one-third couldn’t,” Lund says. “Now it’s the reverse—two-thirds will have to find a higher-wage, higher-skill job.”

You could see that shift as a great opportunity, but it’s also a substantial challenge. As the report says, “Transitions from low- to high-wage occupations have historically been rare.” The promising potential is that those transitions “could offer better career paths and upward mobility.” For example, a cashier could move into the fast-growing health care sector initially as an orderly, then move up to being a nursing assistant, then to being a licensed vocational nurse—three gradual steps, each requiring training, that would cumulatively more than double the cashier’s pay.

The great challenge for this decade will be upskilling on an unprecedented scale. “There are two parts to the solution of getting low-wage people onto upwardly mobile career paths,” says Lund. “One is that we need more short-term training programs. We started with coding boot camps to learn programming, but there are many similar ones that will, for instance, teach in 12 weeks the basic skills you need to be a certified nurse assistant. The second part is helping people figure out a series of job moves they can make. Companies are using A.I. to help people assess their intrinsic skills and what sequence of job moves they could make to get into higher paying, more stable work.”

Employers will take on much of the burden. They know best which skills they need. Dozens of companies—Walmart, IBM, Bosch, Barclays, Merck, Nike, and many others—have expanded their training programs, started apprenticeship programs, or partnered with schools to train large numbers of current or potential employees.

Lund sees the trend’s upside. “If we can navigate this, it’s good,” she says. “We’ll have people earning higher wages, being more productive, and it will boost the economy.” And she believes it’s entirely doable: “The pandemic certainly showed lots of companies that they were able to react and adopt new ways of doing things much faster than anyone thought. It shows that we can adapt really quickly and successfully when we need to and want to.”

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