Project Syndicate

The stickiness of pandemic-driven economic behavior

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MUMBAI/SAN FRANCISCO –When COVID-19 arrived, firms, workers, and consumers had to adapt quickly in order to continue operating under the constraints that the pandemic imposed. As vaccines enable a resumption of more “normal” activities, at least in some countries, the extent to which these changes will stick is one of the most pressing questions businesses face.

Our research finds that the persistence of pandemic-induced behavioral changes will depend on a combination of corporate decisions and government policies, which in turn determine choices by consumers and employees. These factors don’t always conspire to make consumer preferences stick. For example, surveys indicate that 30-50% of consumers intend to buy sustainable products. But such products typically account for less than 5% of overall sales, in part because companies charge higher prices for them and governments offer no purchasing incentives.

In contrast, the global disruption triggered by COVID-19 created a perfect storm in which some shifts in consumer behavior were matched by changes in business operations and government regulations. Many such behaviors in fact accelerated practices that held promise before the pandemic but had failed to gain traction because of cost concerns or widespread skepticism. The virus, by creating an opportunity to experiment with them, made their value much more apparent.

Moreover, advances in digital technologies helped create a broad ecosystem to support these behavioral changes. Some companies combined videoconferencing with augmented-reality technologies for the first time to enable technicians in one location to repair machinery at another site. Other businesses stepped up investment in robotic processing, thereby transforming management of routine paperwork. The cost savings and convenience resulting from the use of such tools are likely to bolster the staying power of remote work and reduce business travel, among other changed practices.

To determine whether such pandemic-driven shifts will endure, we examined a wide array of behaviors. We applied a “stickiness test” to each, taking into account consumers’ and workers’ preferences, as well as the actions of companies – including the innovation unlocked by digital tools – and government policies.

Consider online retail. Many consumers who shopped online for groceries out of necessity during the pandemic have found it convenient. Meanwhile, retailers stepped up online investments and created more product and delivery options for consumers, including click-and-collect shopping for those averse to delivery fees. The increase in user numbers has so far mostly held up. Regulatory policy changes also supported online consumption. The US government, for example, eased restrictions on where those receiving food assistance payments could use them, a small adjustment that enhanced convenience and brought business benefits.

Other new behaviors may not stick if digital tools and market practices do not sufficiently adapt to provide a better user experience. For that reason, online education, particularly for younger students, is likely to ebb. The often-unsatisfactory experience of students, teachers, and parents with distance learning, especially among families that lacked digital tools or adequate connectivity, suggests that remote education will continue only selectively, and mostly in higher education and job training.

The stickiness of changed spending habits is reinforced by people’s upfront investments in new consumption patterns. Consumers who engaged in “home nesting” during the pandemic, for example, made significant investments in furnishings, durables, and gaming and exercise equipment. They will likely continue to spend more time on home-based activities such as cooking and watching the latest hit shows on the big-screen TVs they bought while cooped up inside.

A similar pattern of stickiness holds true for workers. For some, working from home during the pandemic satisfied a long-standing desire for greater flexibility and freedom from commuting, among other benefits. In a recent McKinsey survey of more than 5,000 full-time employees in nine countries, 52% said they would like a hybrid remote-work plan in the future, a 22-percentage-point increase compared to before the pandemic, and 11% preferred a fully remote working arrangement. Our analysis of 2,000 activities across more than 800 occupations suggests that as many as one-quarter of workers in advanced economies could work remotely 3-5 days per week without loss of productivity. In some places, therefore, employers are confronting the question of how much remote work to allow.

Should such changes in work and consumption patterns endure, they could have knock-on effects on other behavior. For example, we expect demand for leisure air travel to return to its pre-pandemic growth rates in the near term. Airfares and hotel room rates have already begun to increase, as various locales have relaxed COVID-19 restrictions and consumers have increased their online searches for vacation spots.

But the longer-term impact of COVID-19 on the travel industry is less clear. Previously, higher airfares for business travel effectively subsidized lower prices for leisure travelers and expanded their choice of destinations. But if increased remote work and digital collaboration tools reduce demand for business travel, the leisure sector may benefit less.

The behavioral changes that stick after the pandemic has subsided will offer new business opportunities for firms that carefully assess consumer preferences, related changes in industry practices, competitors’ actions, and government policies and regulations. Our research suggests that average annual productivity growth could increase by roughly one percentage point through 2024 if the sticky trends we identify persist.

Policymakers can help the world to capture this opportunity by extending and improving digital infrastructure and ensuring that all consumers, workers, and businesses have access to it. If the benefits are widespread, the potential productivity gains could lead to a robust, equitable recovery.

This article originally appeared in Project Syndicate.