How investing in digital skills can help the economy recover from COVID-19

The COVID-19 pandemic has created one of the biggest challenges in policy making - how to protect people's health while avoiding lasting damage to the economy.

As we are mitigating the impact from a second wave of new cases on public health, it is also critical to safeguard people's living standards. First, we need to limit the number of job losses as a direct result of the crisis and then we need to find a path to economic recovery that creates new jobs and raises their incomes.

This difficult task is further complicated by the fact that the pandemic has worsened inequalities in the labour market - first the social distancing measures have especially hit industries such as restaurants, accommodation and entertainment. In those sectors we find disproportionately large numbers of young employees, women, minorities and people with lower educational degrees.

Second, the job losses are concentrated among those with flexible contracts which often are relatively low-income workers. And third, households with pretty solid balance sheets have been much better in bettering the storm than those that have little to spare.

And all of this will only get worse if a second wave would hit as hard again.

There has been much discussion among economists and policy analysts about the shape of the economic recovery, the hope for rapid rebound - the so-called "V-shaped recovery" is out of the window.

It might get worse  before it gets better - a W shape - or it will just take a long time, making the recovery U or L-shaped.

Recently, the "K-shaped recovery" has been proposed as another path coming out of the crisis. Some groups are riding the upper leg of the K, faring relatively well or perhaps getting even better off as the recovery takes hold.

Others, who have lost their jobs and see their living standards worsen, are on the lower leg of the K.

How can we avoid the "K –shaped recovery"? How can we carve out the path to growth that works for all? Obviously, first and foremost, we need to limit further job losses.

European-style short-time working schemes have proven their value in limiting a rapid increase in unemployment in, for example, Germany. It is a good thing that the government is seriously considering those programmes to stem the tide of more job losses.

But even as those programmes help a lot in the short term and can be a big contributor to reduced inequalities this crisis is creating; they are not a panacea for a sustained growth path ahead.

As the crisis lasts longer, some companies will not survive and go bankrupt once the support programmes run out.

Some industries will need to make permanent adjustments to create new business models. So, when people come back to the labour market and unfortunately, it may be so that their old job is not there anymore. A second important part of any recovery programme therefore needs to be focused on creating the jobs of the future.

What those exactly are is difficult to say, but it is likely that workers with digital skills will be in higher demand. The pandemic has accelerated the path of digital transformation with more virtual work and more online buying. This is changing things in virtually every industry in the economy. It is therefore important that government, business and individuals invest in digital skills now.

Other skills that make workers agile and flexible in adjusting to new job requirements are also important for any training programme.

Much should be done to target those programmes to those who meet them most - those on the lower leg of the "K recovery". There are two sides to job-friendly strategies that benefit those whose jobs are most at risk.

First, it helps those workers to come back to the labour market faster and put them in a position to generate higher wages and income than before. Second, it will help companies to become more productive, giving them greater incentives to continue to invest in new technologies and reward those workers who bring the skills that are needed to succeed.

This way, we can avoid the job intensive but low productivity growth path that we have seen since the financial crisis in 2008-09.

The Productivity Institute, a new national entity to tackle the productivity puzzle, and headquartered at the Alliance Manchester Business School, thinks that resolving inequality issues before and since the crisis is one way to raise productivity and create sustained growth in the long term.

 We need all hands on deck now, together.