Working Out the Differences: Labour Policies for a Fairer Recovery
By John Bluedorn
The COVID-19 pandemic’s destruction of jobs was sure and swift. The lasting effects of the crisis on workers could be just as painful and unequal.
Youth and lower-skilled workers took some of the hardest hits on average. Women, especially in emerging market and developing economies, also suffered. Many of these workers face earnings losses and difficult searches for job opportunities. Even after the pandemic recedes, structural changes to the economy in the wake of the shock may mean that job options in some sectors and occupations permanently shrink and others grow.
In our latest World Economic Outlook we examine how policies can lessen the pandemic’s harsh and unequal effects. We find that a package of measures to help workers keep their jobs while the pandemic shock is ongoing, combined with measures to encourage job creation and ease the adjustment to new jobs and occupations as the pandemic ebbs, can markedly dampen the negative impact and improve the labor market’s recovery.
Automation picks up
Jobs that are less skill-intensive and more vulnerable to automation tended to suffer more during the pandemic recession. Although the impacts on specific sectors differed from past recessions, the pandemic has accelerated preexisting employment trends, reinforcing a shift away from employment in sectors and occupations more vulnerable to automation.
Among those sectors that have shrunk the most from the crisis are hotels and restaurants (accommodation and food) and wholesale and retail stores (trade). Social distancing and behavioural changes induced by the pandemic intensified the employment drops in these sectors typically seen in past downturns. By contrast, the information technology & communication and finance & insurance sectors have actually seen employment growth last year. Many of the more impacted sectors – often with fewer jobs amenable to remote work – tend to employ higher shares of youth, women, and the lower-skilled, contributing to the unequal effects across worker groups.
A steep climb back
Evidence from past recessions suggests that the pandemic is likely to inflict sizable costs on the unemployed, particularly lower skilled workers. After unemployment spells, workers often have to switch occupations to find a new job, which tends to come with a pay cut. On average, unemployed workers finding work in a new occupation experience a large average earnings penalty of about 15 per cent compared to their previous earnings. Lower-skilled workers experience a triple whammy: they are more likely to be employed in sectors more negatively impacted by the pandemic; are more likely to become unemployed in downturns; and, those who are able to find a new job, are more likely to need to switch occupations and suffer an earnings fall.
Based on Chapter 3 of the World Economic Outlook, “Recessions and Recoveries in Labour Markets: Patterns, Policies, and Responses to the COVID-19 Shock,” by John Bluedorn (lead), Francesca Caselli, Wenjie Chen, Niels-Jakob Hansen, Jorge Mondragon, Ippei Shibata, and Marina M. Tavares, with support from Youyou Huang, Christopher Johns, and Cynthia Nyakeri.