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People Power: COVID-19 Will Redefine Workforce Dynamics In The Post-Pandemic Era

With the onset of the COVID-19 pandemic earlier this year, companies around the world have faced the gravest disruption in more than a generation, with a variety of sectors facing an existential threat amid a severe economic downturn--an uncertain prospect given the mixed signals on policy and challenges forecasting the spread of a novel disease. Even once the recovery is underway, there will be enduring and irreversible changes to the relationship between companies and their employees. In some industries, employees represent the largest and most significant stakeholder group, and what is required to engage effectively with this group is going to look very different as the pandemic abates. The transition to this future state is fraught with social risk, and even companies that have become more sensitive to environmental, social, and governance (ESG) considerations in recent years are struggling with how to mold their workforces to mitigate this exposure.

Unprecedented Unemployment Rates Have Hit The U.S. Economy

U.S. state governments' drastic social distancing requirements to quell the rise of COVID-19 have led to widespread shutdowns, layoffs, and furloughs, which have in turn led to a staggering 14.7% unemployment rate as of April 2020, a level unseen since the Great Depression.

Chart 1


While employers have laid off employees in great numbers, job losses have been particularly pronounced in sectors that most heavily rely on in-person interactions, and have thus been hardest hit by shutdown orders and social distancing policies. The largest unemployment increase has been in the leisure and hospitality industry, where employment has plummeted 47%. Employment also fell in the restaurants and retail, travel and transportation, entertainment, and personal services industries, which have seen lay-offs or furloughs in the millions over the past few weeks (see chart 2).

Table 1

Major Layoffs And Furloughs
Company S&P Global Ratings sector classification Approximate number of employees laid off or furloughed % of workforce affected


Retail 120,000 95


Leisure 117,000 66

Walt Disney

Media and entertainment 100,000 ~50

J.C. Penney

Retail 80,000 95


Retail 85,000 70


Retail 80,000 60


Retail 70,000 95


Leisure 59,400 90

Best Buy

Retail 51,000 40


Retail 40,000 90

Landry's Inc.

Restaurants/gaming 40,000 70


Transportation 16,000 10

Tenet Healthcare

Healthcare 11,000 10


Transportation 10,000 25
Norwegian Airlines Transportation 7,300 90

Air Canada

Transportation 5,100 50
Note: Actual announced numbers or estimates based on the company's total employee count.

Chart 2


Average hourly earnings increased 7.9% in April, largely reflecting the job losses of lower-wage workers. Leisure and retail, the two industries with the lowest average hourly earnings of $18/hour and $21/hour, respectively, have experienced some of the largest employment declines, while higher-paid employees in sectors such as financial activities and utilities have been largely spared.

Chart 3


Compounding the issue, workers in lower-paid sectors are much less likely to have access to employment benefits such as employer-sponsored health insurance, remote-working accommodations, and paid time off. According to the Harvard Business Review, among workers at the bottom 10th of the earnings distribution, only 31% have paid sick leave in contrast to 94% of the top 10th. In addition, according to a March 2019 survey by the Bureau of Labor Statistics (BLS), only 7% of workers had the option to work from home, and this dropped to 1% for those in the bottom wage quartile. Those that do have access to remote work are largely white-collar professionals who also tend to be the highest paid.

Chart 4


The Future Of (Un)Employment Remains Largely Unclear

The length and severity of this employment pressure remains largely uncertain and will depend on the trajectory of the pandemic, the pace at which lockdown orders ease and businesses start to reopen, and the speed at which consumer confidence and buying behavior rebounds. On one hand, temporary layoffs mostly led to the rise in unemployment in April (about 80% of the total), with many workers expecting to return to their jobs over the next few months as businesses reopen. However, at the same time, the labor force participation rate has declined 2.5% to 60.2%--the lowest since January 1973--potentially indicating that a new wave of discouraged workers has emerged.

With much of the country still following strict stay-at-home orders, we believe many workers, particularly those in the most vulnerable populations, such as the elderly, are actively choosing to exit the workforce (i.e. retire) in order to avoid contracting the virus. The participation rate of men and women 65 years and older (with no disability) declined to 23.5% in April 2020, almost the lowest level since December 2014. In our opinion, this could substantially affect the makeup of a U.S. labor market where aging workers have historically been one of the fastest-growing demographic groups and were expected to make up nearly one-quarter of the labor force by 2026, according to the BLS. In our opinion, hiring and keeping older workers is invaluable for employers in retaining institutional knowledge and skills transfer, increasing age diversity, and contributing to improved workplace productivity. We believe industries (e.g. manufacturing, transportation, and utilities) already experiencing an aging workforce due to difficulty attracting younger labor and associated growing skills gap, could be most affected by this trend (see chart 5).

Chart 5


If older workers increasingly exit the labor force, attracting, developing, and retaining younger workers will become increasingly important. We believe employers will need to make significant financial and time investments in employee training and resources, leadership building, and career development programs to encourage employees to remain with the company and support its strategic goals. In addition, we believe companies will need to focus on comprehensive incentives including health and wellness benefits, flexible work hours, and competitive wages to remain attractive to new talent. Although risk mitigation factors may raise operating and capital expenditures in the near term, we expect the long-term impact of these actions, if executed effectively, to be overall positive, with reputational and operational benefits offsetting near-term costs.

Another factor that may partially be contributing to the declining labor force participation rate is the extra $600/week Americans are receiving from the coronavirus relief bill. The extra payment received is larger than the average weekly wages earned in 50% of U.S. states (see chart 6). As a result, employees may continue to face the difficult decision of choosing to either return to work and expose themselves to greater risk of contracting the virus, or remain on unemployment benefits and limit their exposure. With the additional unemployment payments currently being offered and lingering fear of going back to work, the COVID-19 outbreak has highlighted the importance of employee engagement in the economic recovery and sustainability of corporations. However, the discrepancy between salaries and unemployment benefits has indicated that compensation and the benefits currently offered by employers may not be sufficient to entice employees back into the workplace, at least immediately. This has prompted a reconsideration of the value of workers and, most importantly, presented a rare opportunity for employees to demand change.

Chart 6


Demands For Change Face The Cost Of Action

According to a Payday Report, there have been at least 190 labor strikes in the U.S. since the beginning of March. Protests have occurred across a number of industries including retail, e-commerce delivery, and food processing. On May 1 (International Workers' Day), essential workers at retail and delivery companies including Amazon, Whole Foods, Target, Walmart, FedEx, and Instacart held strikes nationwide by walking off their jobs or calling out sick to protest alleged unsafe and unethical working conditions. Employees at certain McDonald's locations and other fast food chains around the country also expressed their health and safety concerns in early April by walking off the job, demanding hazard pay, protective gear, and enhanced safety guidance. Media and public scrutiny have further raised the profile of these employees and their demands, making consumers more attuned to social issues (including employee working conditions), and putting corporate reputations increasingly at risk. With thousands of "essential" workers now on the front lines, those who previously didn't have much leverage in the workplace now have an opportunity to use the pandemic as a platform to raise awareness and advocate for improved safety protections and health benefits.

Some essential businesses that have continued to operate during the mandated shutdowns have swiftly responded to employee demands, taking bold and proactive actions. For example, Walmart has committed more than $935 million in bonuses for full- and part-time associates while also hiring 235,000 new hourly workers to help it staff stores. Other companies have implemented new safety measures including distributing protective equipment such as masks and gloves to employees, temperature checks, social distancing measures, and enhanced cleaning. The largest portion of the increase in costs related to containment are the temporary wage increases, which we expect will roll off in the second half of the year. The other costs, which are manageable for most larger companies, are likely here for the foreseeable future. We believe taking these actions based on the needs and demands expressed by employees are vital to strengthening companies' employee engagement, brand, and reputation provided these efforts lead to substantive and enduring workforce improvements.

However, we believe larger companies are more likely to have sufficient resources to respond fully to the COVID-19-related challenges, including better access to capital and greater financial power to temporarily absorb margin compression. These companies may be able to offset higher safety-related costs with other initiatives, such as cost-cutting or reducing share buybacks or dividends. Lower marketing expenditures while capacity is limited also provide an offset. For example, Walmart was able to absorb the $900 million in additional costs associated with incentivizing its employees while still reporting an operating profit in the most recent reporting period. For a company of Walmart's size, costs associated with COVID-19 are a relatively small price to pay to ensure a strong public perception of the brand and workforce continuity. On the other hand, these efforts may not be an option for many small, cash-strapped companies that were already experiencing operating pressures and tighter liquidity. Despite efforts by many organizations, both small and large, to protect their stakeholders, we ultimately believe corporations that have the resources to better embed stakeholder considerations in their decision-making and strategy will likely be better able to limit unintended consequences and be more resilient over time (see "The ESG Lens On COVID-19, Part 1," published April 20, 2020).

Safety And Privacy Demands - A New Labor Movement?

Company challenges related to COVID-19 are not strictly financial and operational. In fact, as the pandemic subsides, employers must decide how to allow their employees to return to work in a way that sustains a safe workplace without compromising employee privacy. This is largely the result of a cost-benefit analysis for employers; while some have the resources and infrastructure to make large-scale workplace changes, others lack the tools needed to support such activities. For those companies that remain open, how they treat their workers, particularly when it comes to workplace safety, will likely have a lasting impact on their reputation and thus long-term financial viability. In our opinion, the manufacturing sector is particularly vulnerable to these challenges given the worker-dense nature of facilities, large proportion of jobs that cannot be performed remotely, and slowing demand for manufactured products. As economic activity declines, capacity in the manufacturing industry will likely decline significantly, which could translate to staff reductions and other cost-cutting measures (see "COVID-19 Deals A Larger, Longer Hit To Global GDP," published April 16, 2020).

Complicating this matter are the different restrictive environments imposed by federal, state, and local governments. At the federal level, the Trump Administration has encouraged employers to develop policies surrounding social distancing, personal protective equipment, temperature checks, isolation and contact tracing, and sanitation. The Equal Employment Opportunity Commission (EEOC) also released guidance that permits noninvasive temperature checks to detect the presence of the virus in employees returning to work. This is a departure from a previous EEOC policy that barred temperature checks because they constituted "medical examinations." However, with authority on reopening ultimately lying at the state level, companies with operations in multiple jurisdictions have to juggle a number of different rules and regulations, with comparatively less support from the federal government. These challenges make it more difficult to adopt one consistent safety-related approach.

In addition, new safety policies could potentially conflict with federal privacy protections, putting employers at risk of litigation from their employees. According to the National Law Review, a number of COVID-19 related employment class action lawsuits have already been filed and are expected to expand across industries, jurisdictions, and areas of law. Claims employers may face include workplace safety, worker classification, age discrimination, and employee privacy. For example, a company's choice to disclose an employee's infection to others could be seen as a breach of personal data privacy. In addition, requiring employees to test negative for COVID-19 before returning to work could be seen as disability discrimination and a violation of health privacy laws. And finally, barring older workers from returning to work based on fears that they may be statistically more vulnerable to contracting the virus or becoming seriously ill if infected could be seen as age discrimination.

So far it's uncertain whether or not employees will allow greater company intervention into their personal lives if it can ensure safety and job security. However, these issues do present a need for companies to effectively mitigate the privacy impact of their protective actions in order to earn their employees' trust and effectively compete for talent in the post-pandemic era.

The Workplace Of The Future

At some point the pandemic will come to a close, but its legacy and implications for the way we interact, especially at work, will persist. Across the U.S., business travel, daily commutes, and in-person meetings have come to halt, and a new work environment filled with virtual interactions has taken hold in 62% of Americans' work lives, according to MarketWatch. The longer the pandemic persists, the more this new workforce paradigm will become rooted in employees' daily lives. Ultimately, we believe changing workforce dynamics will have profound future implications on the workplace structure, health and safety benefits offered to employees, and technological innovation.

Remote work

The main reason for companies compelling their employees to work from home during this pandemic has been to curb infection rates and slow community spread of the virus. However, even as the pandemic leaves the cone of concern, this new way of working may prevail. Companies like Twitter and Square have already completely embraced the framework by announcing indefinite work-from-home for their employees. As we emerge from the depths of the pandemic, this will prompt a discussion of the opportunities and risks surrounding remote work for sectors that are more readily available to adapt to the changed environment. The more this discussion plays out in the public domain, the more it stands to have reputational consequences for the companies that are party to it--positive or negative.

There are opportunities for both companies and employees in a remote work environment. For one, with more jobs in a remote environment, there could be a more talented, competitive, globalized job market available across relevant sectors for recruitment and reskilling opportunities. For example, Bank of America recently hired 3,000 people in internship and college recruitment roles that will follow a work-from-home structure. As a result of this changing dynamic, we may see shifts in employment growth across sectors as new jobs and fields are created. While operating tools and systems at home are often not the same caliber as those in the office, the remote work environment may present an opportunity for employers to innovate how they operate and engage with their employees on a daily basis.

In a recent survey by Garner (Forbes), 74% of chief financial officers polled said they would make at least 5% of their workforce persist in their remote work environments even after the pandemic has subsided. A more permanent shift to this dynamic could also result in major cost savings for both employers and employees. For select companies, this decision could allow them to leverage operational and overhead expenses. For employees, the cost savings could manifest themselves in reduced commuter and living costs.

There are also risks to consider with an increasingly remote work environment. Since a significant proportion of the workforce went virtual starting in March 2020, privacy and security concerns have continued to emerge. As a result, greater technology and cybersecurity expenses to ensure that both employees and confidential information remain secure may offset operational cost savings. A massive undertaking with working from home for both an employee and employer is cyclic productivity. Productivity tracking products have regained traction in the market to mitigate productivity concerns. This raises valid privacy concerns for employees that this type of tracking could violate their privacy rights. We must also be acutely aware of negative work culture changes as people become further removed from physical office interactions. The work-life balance line is increasingly being blurred and we may start to see the standard workday changing into something that more closely resembles people's dynamic lives. For remote work to remain viable for the wider population going forward, companies and employees must find conducive ways to combat the unfavorable effects of this new normal.

Health and safety

The future of employees' health and safety is paramount as workplaces across the U.S. begin to open again. The gradual reopening of businesses means the return to work for sectors predominantly affected by the shutdown: retail, restaurants, personal services, entertainment, travel, and transportation. These sectors have to shift their original business models to encompass new guidelines regarding social distancing, contact tracing, and testing of employees. In addition, companies should expect that the pay and benefits employees need to perform their work responsibilities could look different from before. For instance, hazard pay may become an expected addition to benefit packages for more exposed sectors such as retail and restaurants. Cable operator Charter Communications has led the way in this effort by making its hazard pay for frontline workers permanent. While other companies have ended their hazard pay programs, essential workers have been adamantly pushing back, making us believe the discussion of pay for hazard workers may ultimately morph into a larger living wage discussion. Increased transparency in safety policies and the treatment of employees will also grow in importance as noncompliance with regulatory and public health standards pose problematic financial and health risks. In our opinion, companies with strong awareness and decision-making capabilities and a stakeholder-focused governance framework will be in the best position to prepare for reopening while keeping employees' health and safety in mind (see: "The ESG Lens On COVID-19, Part 2: How Companies Deal With Disruption," published April 28, 2020).


Social distancing and lockdown measures across the world have catapulted the importance of technology in the past few months. Technology is being leveraged across industries for greater support in e-communication, training new and returning employees, and the stability of work globally. Technology is allowing for the rapid retooling of sectors, such as the health care and legal industries, with telemedicine and virtual court hearings having skyrocketed during this time. As more companies and industries leverage the changing technological atmosphere, there will be new risks to acknowledge such as the continual shift toward automation of jobs and confirming accurate court and medical results through a purely virtual model.

In the coming months, the materiality of these factors will only become more apparent. As this is a pandemic without modern precedent, we can only speculate on the magnitude of the exposure that companies have to these transformative risks. But more importantly, we'll also seek to understand how substantial the ripple effects are. We believe that these factors are going to roil the way we work collectively, and that this is bound to have unpredictable consequences. This is the essence of our study of ESG risks: that both the direct and indirect impacts of disruptive events can be highly material to a company's long-term viability. In some cases, this can be a positive differentiator against peer companies. And, beyond this, a company's response to these disruptions can provide visibility into its level of preparedness, not just for pandemics, but for unforeseen risks in general.

Related Research

  • The ESG Lens on COVID-19, Part 2: How Companies Deal with Disruption, April 28, 2020
  • COVID 19: A Test of the Stakeholder Approach, April 21, 2020
  • The ESG Lens On COVID-19, Part 1, April 20, 2020
  • ESG Evaluations Remain Unchanged For Now In Light Of COVID-19, April 7, 2020
  • Environmental, Social, And Governance Evaluation Analytical Approach, April 12, 2019
  • How To Navigate The ESG Risk Atlas, April 11, 2019
  • How We Apply Our ESG Evaluation Analytical Approach, April 10, 2019
  • The ESG Advantage: Exploring Links To Corporate Financial Performance, April 8, 2019

This report does not constitute a rating action.

Primary Credit Analysts:Lori Shapiro, New York + 1 (212) 438 0424;
Michael T Ferguson, CFA, CPA, New York (1) 212-438-7670;
Secondary Contacts:Corinne B Bendersky, London + 44 20 7176 0216;
Caitlin Harris, San Francisco;

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