When Covid erupted in early 2020, governments were ill-prepared.
It had been a century since the last pandemic, the great flu outbreak of 1918-1919. Given the speed of transmission, and an alarming death rate, Governments needed to move decisively, in the face of limited information.
The flu pandemic disproportionately affected young people. Initially, it was not clear whether Covid would be different. As it turned out, three-quarters of those who died were aged over 75. With the benefit of hindsight, maybe the lockdowns could have been handled differently.
It’s already clear from research findings that school closures adversely affected many children. While for many adults, Covid is like a bad dream from which we have now woken, others have experienced long-term adverse physical and mental health effects. It will be valuable to conduct comparative research to see how educational and health outcomes were affected by different national responses on the length and severity of lockdowns.
Given lockdowns, EU output fell by more than 6 per cent in 2020. In Ireland, household consumption fell by almost 10 per cent, as people could not take holidays, shop in person in nonessential shops or engage in social activities. The numbers unemployed rose substantially. However, in most countries, active economic management of the public health crisis proved successful.
Governments acted immediately to provide generous support to households through large-scale government borrowing. Aggregate government borrowing in the EU, which had been close to balance the previous year, rose to almost 7 per cent of national income in 2020. In Ireland the corresponding borrowing share was close to 9 per cent; in the US and UK borrowing in 2020 reached about 14 per cent of GDP.
Measures such as the pandemic unemployment payment supported those laid off as economic activity contracted. This generous support protected household income, but, with fewer opportunities to spend, households experienced a big build-up of savings. Typically, Irish households would save about an eighth of their income, but in 2020 and 2021, this savings share doubled.
Ironically, government generosity during the pandemic has created a headache now by adding to house price inflation
By 2022, when the milder Omicron variant allowed a return to normal life, some of these extra savings were spent on holidays and home improvements, but a lot has remained in bank deposits. In Ireland some of the forced lockdown savings found their way into the housing market, helping to drive up prices. While individuals believed the extra savings they had would make it easier to buy a house, collectively the extra cash available for house deposits ended up raising the price of a limited stock of available homes. Ironically, government generosity during the pandemic has created a headache now by adding to house price inflation.
The world of work has dramatically changed. Working from home became a necessity during lockdown, with hybrid working becoming the norm for most office jobs when workplaces reopened. Before 2020, only 20 per cent of Irish workers worked partly or fully from home – today that has risen to 35 per cent. It’s not yet clear how current or future productivity will be affected by this change.
One clue comes from a difference in the reported hours worked by employers and that by employees. Data from employers suggests that hours worked today are similar to what they had been before the pandemic. However, employees report a significant fall in average hours worked. It could be that employees and their firms are reporting different things, with workers reporting a shorter working day because of reduced commuting time. Or maybe some people working from home are not actually putting in their full required hours.
A significant concern with remote working is that there are fewer opportunities for spontaneous engagement with colleagues, at the photocopier or over coffee, that can forge relationships and spark ideas.
While important business meriting a formal agenda gets discussed at Teams or Zoom meetings, it’s often at unscheduled encounters, or in the margins of formal meetings, that new ideas and new thinking emerge. A quiet word in person can defuse potential tensions or solve minor problems before they escalate – these soft advantages of working together in person get lost at virtual meetings. A shared organisational culture is also harder to establish when most people are working from home.
As new people join work teams, this problem will grow, as it’s difficult to establish a collaborative work environment when people rarely meet in person. Measuring the consequences of this loss of informal interaction is difficult, and it will take time for its potential negative impact on productivity to become clear.
