Business sectors unable to telecommunicate—such as hospitality, entertainment, food services and travel—suffered more severe disruption from the Covid-19 virus than industries such as technology that could perform tasks remotely.
“It seems crazy that you could run an IT consulting firm seeing a trebling of demand and you’re just as eligible to receive payroll subsidies as a movie theatre that hasn’t opened in months,” says Lawrence Schmidt, Assistant Professor of Finance at MIT Sloan of Management, who co-authored a new study.
“A more targeted policy would provide more bang for the taxpayers’ buck,” Schmidt said. Not only that, but more targeted intervention is necessary to support the sectors hit hardest by the coronavirus crisis. The study offers policymakers a blueprint with which to deliver a second round of stimulus.
In one finding, the study found heavily disrupted firms suffered an 8% slide in analysts’ revenue forecasts for the second quarter of 2020; a 7% fall in stock market performance to date; and a 0.22% rise in chance of default in the next six months. And while analysts expect the worst effects of the crisis to be short-lived, the study concluded that an inability to work remotely is still a predictor of expected revenue growth over the next two years.
“The supply-side disruption is setting off a series of cascading effects that have proved devastating for the US economy, which contracted by 5% on an annual basis in the first quarter of 2020 and is expected to shrink further,” says Schmidt. “Mortgage delinquencies amid mass unemployment could freeze credit markets while many companies face a liquidity crisis.”
In an additional finding from the study, the researchers showed that the supply-side shocks are worsening the already stark inequalities in American society. In sectors unable to remote-work, lower-paid workers, particularly women with young children, were significantly more likely to be unemployed through the crisis. Compared to sectors where working remotely is an option, these workers were 15 percentage points more likely to be unemployed—three times the increase in likelihood of joblessness overall in industries that cannot work remotely.
“The pandemic is worsening societal inequality,” says Dimitris Papanikolaou, Professor of Finance at Northwestern’s Kellogg School of Management, and co-author of the study. “COVID-19 may reverse the gains made in narrowing the gender gap in wages, driven by the decline in manufacturing and the growth in the services sector, which employs a disproportionate number of women. It’s also the sector suffering the most from COVID-19, and it tends to employ blue-collar workers without a college degree, who are bearing the brunt of the economic crisis.”