How lockdown has affected the working world

What did the Covid shutdowns do to the global economy, and has it changed the way we work forever? Here’s Vicky Pryce from the Centre for Economics and Business Research…

Vicky - The lockdown that was implemented in quite a lot of countries led to the global economy contracting very significantly because basically production was closed down, people didn't go out to spend, transport wasn't used, airlines weren't flying. So it was a complete sort of stop of the normal economic activity that you would expect to see on a normal day. So it was pretty substantial and pretty shocking. And the interesting thing is, of course, that it was pretty global. There were different things that were done in different countries and different types of lockdowns and their length and intensity if you like. But overall the impact was one of real contraction in the world economy to begin with.

Chris - With any kind of knock, there are both short term and long-term effects. You've just described short term what the impact was. What about longer term? Did everything bounce back and are we back to where we were pre pandemic? Have things surged? Have some things not come back?

Vicky - There were differences in different countries. A lot of the knock on effects of Covid and lockdowns was that as we were coming out of it, there were real problems with the supply chains. People found themselves located away from where the factories would be. The goods that were being produced in places like China were just not produced because all sorts of things were closed down for a while. You didn't have the ships in the right place to bring things over. So it all continued even when lockdown restrictions were gradually being lifted to have a serious impact on economic activity. And with it of course, because demands suddenly surged because people hadn't been able to travel or do anything at all very much. You saw prices starting to rise quite significantly with some real shortages in lots of parts of the economy, not just in the UK but also globally.

Chris - Different countries did different things, you pointed that out earlier. That must afford us some opportunities to ask, well, does a more severe lockdown translate into a bigger economic hit or is it just a short term thing with a bounce back? What does that picture look like?

Vicky - Governments borrowed an awful lot of money and spent a lot of money keeping the economies going. So in the case of the UK and European countries, we had the furlough scheme, which basically kept people on payroll even though they weren't working because they were getting money through the companies that they were on the payroll of. And governments became incredibly indebted. Debt went up, sovereign debt went up very significantly. And also the support given to firms has left a legacy as well. And right now we're trying to roll back a little bit that fiscal generosity that was there. And it was only really made possible by the fact that central banks went out and bought a lot of the government debt, interest rates came down very significantly since then, of course they've gone up very significantly. So the world has recovered, but with serious problems left from the time of Covid because of the way in which governments intervened if you like. Some countries didn't even do lockdowns, but overall they all had to spend a lot.

Chris - What does the economic argument look like in the wake of things like these furlough schemes? Are we better off for having preserved everyone at work and taken on the debt or would we have been better off not to end up so indebted in the first place?

Vicky - When you look at what happened to the US, which did not do furlough, they in fact put huge amounts of money back into the economy to keep things going more than, as a percentage of GDP, than the UK and a number of European countries. So doing it one way or another doesn't seem to have necessarily helped governments' fiscal position. One had to intervene and intervene very heavily.

Chris - One of the other massive shifts has been towards working from home and we've seen a mixture of messages about that. Some companies have been very enthusiastic, some industries unsurprisingly very unenthusiastic because it just wouldn't work for them. We seem to be seeing a move back towards the office. What's the economic argument for that?

Vicky - Well, IT systems have proved to be pretty good. You know, communicating with people not needing to travel. When you look at airline travelling, that's now been frowned upon for business reasons alone because we found ways of communicating without necessarily needing to go anywhere and meet people in their offices. We could do it electronically. And I think that's been amazingly useful. That has of course also encouraged people to work from home a lot more. They got used to doing so during Covid, but of course it was only the people who could do it. Remember health workers and lots of others who kept the economies going, had to go out to work so they didn't benefit the same way that those white collar workers have benefitted from this because now of course it's become quite entrenched. Hybrid working has become the name of the game. Laws are changing in terms of workers' rights to allow flexible working from day one. Well, the truth is our flexible working helped productivity quite significantly. All the studies suggest that the problem we've got, and the reason why a number of firms are trying to get people back is first of all, of course all their offices, if they're left empty, commercial real estate suffers quite significantly. And loads of businesses that depend on people going into work also suffer. We saw a huge decline in the use of transport at the beginning. Lots of companies were not doing very well, rail companies and others, is one of the reasons why the government has intervened taking over either ownership or changing the way in which rail companies are run, for example. So you've got that problem, but we also have a serious issue about how you manage people. The reason why people are encouraged to go back to work is because I don't think HR systems are developed enough to be able to supervise or at least feel reasonably happy about what people are doing when they're not in the office. That does not mean that one has to develop real controlling measures. You know, check every movement you make in your house or wherever you are, but trust in your employee is really what needs to happen. I think that's very welcome. It's one of the good things that we have seen come out of Covid and even though people have tended to go back up to a point, I think there's a big percentage which is going to remain hybrid.