K-shaped recovery and a city exodus: The outlook for 2021

Here are the key trends identified by RBC Economics that business leaders should monitor heading into next year.

As Canadians prepare to enter a new year, RBC Economics has laid out some of the largest economic and consumer trends expected to shape 2021. In addition to finding that the economy is unlikely to return to pre-pandemic levels before 2022, the bank suggests next year will be characterized by a “distribution gap.”

“Navigating 2021 will require Canadians to continue to build that decentralized future – and rebuild some of the centralized model that remains a powerful driver of innovation, efficiency and diversity,” writes RBC Economics in Navigating 2021: 21 Charts for the Year Ahead. “Whatever shape and speed the recovery takes, the Canadian economy will continue to blend past and present, physical and digital, further dispersing economic activity and potentially ushering in a new era of decentralization.”

While the convenience and opportunity of a distributed economy are “extraordinary,” the bank notes that “so too are the consequences.”

COVID’s disproportionate impact on financial well-being

The pandemic has created a divide between economic haves and have-nots.

For one, job losses have disproportionately impacted workers earning wages of less than $800 per week. Many of these employees work in the sectors that have been hardest hit by the pandemic, such as hospitality and food, retail and transportation. Together, they account for 65% of the decline in hours worked since the onset of the pandemic.

“This deep division in workers’ experiences has raised concerns about a starkly uneven, or K-shaped, recovery,” notes RBC. “On the upward trajectory of the K are higher-income knowledge workers, often able to work from home. On the downward part are lower-wage, lower-skilled workers in jobs that require close proximity to others.”

Women have also borne the brunt of the pandemic’s impact on the workforce. Female participation in the labour force has dropped to a three-decade low, after having hit an historic high, largely due to childcare in a work-from-home environment. While more than one million women have regained employment, the rate continues to drop for those age 20-24 and 35-39.

This trend is in line with a recent study from Scotiabank that found more women (42%) are worried about their finances right now than men (35%).

Shifts in where we live and work

More Canadians will (or at least hope to) work from their homes next year, creating unequal pressure on housing markets and employers.

COVID’s spring lockdowns resulted in five million Canadians switching to remote work. As of October, 2.4 million of them who don’t typically work from home continued to do so. While that might be welcomed by many employees, who are showing some enthusiasm for the flexibility it provides, RBC Economics suggests many employers feel differently. Among organizations for which remote work is possible, only 30% are likely or very likely to do so once the pandemic is over.

In the meantime, WFH has led many city dwellers to leave their urban metropolis for detached homes, with their bigger yards and living spaces, on the outskirts. As a result, housing price increases in these neighbouring communities have outpaced those in major, expensive cities, where rents have dropped as availability grows.

But since WFH is likely here to stay for employees from certain sectors, the bank warns that organizations will need to adjust.

“With so many employees demanding remote work, and experience showing that it often works well, companies will need to create flexible arrangements if they’re to compete in tight labour markets for highly skilled and mobile knowledge workers.”