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McKinsey Report Calls on Businesses to Support Post-Pandemic Innovations That Create Jobs and Grow Incomes

  • McKinsey & Company report says larger companies have been better prepared to meet the challenges of COVID-19, raising concerns that smaller companies will face greater competitive disadvantages
  • Report calls on businesses and governments to focus on longer-term strategies for sustainable growth rather than focusing solely on revenues and GDP
  • Pent-up demand likely to fuel short-term economic boost, but support for new jobs and labor growth is essential to sustain it

Summary by Dirk Langeveld

A report from McKinsey & Company says larger companies have been better prepared to pivot and meet the challenges of the COVID-19 pandemic, raising concerns that smaller companies may face greater competitive disadvantages after the pandemic. In response, the report is advising a public-private effort to ensure that investments support long-term growth and stability in jobs and incomes rather than focusing on revenues and GDP.

Mckinsey found that while larger “superstar” firms typically experienced no revenue losses during the pandemic, their smaller competitors saw an average loss of 11 percent. The trend was more pronounced in industries such as information technology, health care, and professional services.

McKinsey anticipates that there will be 1.5 percentage points of productivity growth per year on average through 2024 once the pandemic shock subsides and consumer demand returns. The growth will be driven be factors such as automation, e-commerce, operational efficiency, and industry-specific innovations like telemedicine.

Three out of four executives surveyed in North America and Europe said they expect new technological investments to accelerate through 2024, with 70 percent expecting faster decision making and implementation of business decisions. Sixty percent said COVID-19 led them to target new customers or use new channels, while 55 percent said they had developed new products or services in response to the pandemic.

The report warns that while pent-up demand could result in a short-term economic boost, certain business decisions could hamper long-term growth. For example, steps such as automation to cut labor costs could hamper demand by impacting unemployment and wages.

McKinsey advised that businesses and government should pursue three interlocking priorities, namely innovations and advances that expand and sustain productivity growth, taking steps to improve job creation and income growth rather than focusing solely on revenues, and targeting investments to areas that can support long-term sustainable growth such as environmental, infrastructure, and workforce development initiatives.

Other reports have also suggested that labor growth is set to lag behind GDP growth after the pandemic. The Congressional Budget Office determined that GDP is likely to recover this year, but that the jobs lost in the pandemic won’t be fully recovered until next year while the unemployment rate won’t reach pre-pandemic levels until 2024. However, Treasury Secretary Janet Yellen has said she expects that the American Rescue Plan will help spur a return to full employment next year.

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