WILL THE FEDERAL MARKET FEEL THE IMPACT OF “REALLOCATION SHOCK?”
The post-COVID-19 economy will look different from the one we left behind according to a trio of University of Chicago economists, two of who are Nobel laureates. This change will almost certainly have an impact on contractors and those they work with in government. The report states that government policies may delay the reallocation of labor and try to hold onto the past, delaying an inevitable change that should be allowed to run its course. Agencies may seek support from contractors to execute programs intended to restore as much of the pre COVID-19 economic and social fabric as possible. As George Will points out in his Washington Post article on the Chicago study, “the status quo has many constituencies; in democratic societies, the status quo has government on its side.” Second, federal agencies may modify their missions over time to reflect any new economic or social realities that do emerge. This, too, will impact how contractors support such agencies. Even beyond these factors, though, government contractors, themselves, may have to adapt to a post-COVID-19 economy with decentralized workforces and workers that must have both similar and different skills from what was needed in the time before. How quickly and smoothly contractors can execute these changes could lessen the impact of reallocation shock on their businesses.