Government must ensure employment crisis does not turn into social crisis

Posted on Wednesday, 26 August 2020

The OECD has published Employment Outlook 2020.  The report notes that the COVID-19 pandemic has triggered one of the worst jobs crises since the Great Depression and the real danger that the crisis will increase poverty and widen inequalities, with the impact felt for years to come.  It finds that since the beginning of the crisis there has been an exceptionally stark drop in activity with up to 10 times fewer hours were worked in some countries, compared with the first few first months of the 2008 financial crisis and unprecedented job losses. 

Reconstructing a better and more resilient labour market is an essential investment in the future and in future generations.  The report also warns that this jobs crisis risks turning into a social crisis. In the sectors most affected, up to half of all workers have part-time or temporary contracts or are self-employed. Many lack job security and have limited access to unemployment benefits. Countries have provided extraordinary levels of support and should do all they can to maintain it for the most vulnerable, while working to build more inclusive and resilient labour markets.

Some of the main findings on the initial impact of COVID-19 on OECD labour markets show that:

  • The initial impact of the COVID-19 crisis on OECD labour markets where data are available has been ten times larger than that observed in the first months of the 2008 global financial crisis: taking into account both the drop in employment and the reduction in hours worked among those who remained in work, total hours worked fell by 12.2% in the initial three months compared to 1.2% in 2008. This reflects the special nature of the COVID-19 crisis with many countries having put entire sectors of their economy “on hold” to contain the spread of the virus.
  • Even in countries with comprehensive job retention schemes and those that banned or restricted dismissals, however, the number of jobseekers increased, as temporary contracts were not renewed and firms’ hiring activities collapsed: online job postings fell by 35% between February and May in the United States and in European OECD countries.
  • The OECD considers two epidemiological scenarios for the coming 18 months: one where the virus continues to recede and remains under control, and one where a second wave of rapid contagion erupts later in 2020. According to OECD projections, unemployment is set to increase to 9.4% on average across the OECD by the end of 2020 (up from 5.3% at the end of 2019).
  • In the event of a second pandemic wave in late 2020, the unemployment rate would increase even further to 12.6%. Moreover, projections point to only a gradual recovery: the unemployment rate is set to remain at or above the peak level observed during the global financial crisis, reaching 7.7% by the end 2021 without a second wave (and 8.9% in case of a second wave), with substantial differences across countries.
  • Vulnerable workers are bearing the brunt of the crisis. Low-paid workers have been key to ensure the continuation of essential services during lockdowns, often at a substantial risk of exposing themselves to the virus while working. They have also suffered greater job or income losses. Workers who are not in standard (i.e. permanent, full-time dependent) employment, notably the self-employed, have been particularly exposed to the shock.
  • Young people risk being once more among the big losers of the current crisis. This year’s graduates face bleak prospects, with poor chances to secure a job, or even an internship, in the short run; their older peers are experiencing the second heavy crisis in their still young careers.
  • Women have so far experienced greater declines in employment than men, unlike in the previous crisis. Meanwhile, widespread childcare facility and school closures likely amplified their unpaid work burden at home.

These initial findings echoe those of a Working Paper on the initial impacts of the COVID-19 pandemic on Ireland’s labour market published by the Department of Employment Affairs and Social Protection in May. Among the initial findings of this report were:

  • the most severely impacted sectors are Tourism, Hospitality and Food Services; Retail; and Construction.
  • Those who have lost their jobs as a result of the impact of COVID-19 are more likely to be young, low-skilled, female and previously in part-time employment. This reflects the higher share of these workers in the industry sectors most affected (Retail and Hospitality).
  • An examination of the financial position of households of those previously employed in sectors where the fall in employment has been 25 per cent or more has found that these households have very little savings or income put by to mitigate against economic shocks or financial hardship.

The OECD Employment Outlook 2020 also points to changes in policies that are required as we face into a long term employment challenge:

  • About half of all workers are employed in a job that requires significant physical interactions and therefore face a risk of contagion. Strong occupational safety and health standards, defined and enforced by public authorities and/or by social partners, remain a top priority.
  • Paid sick leave can continue to perform an important role in containing and mitigating the spread of the virus and protecting the incomes, jobs and health of sick workers and their families. Moving forward, countries should consider closing long-known gaps in paid sick-leave regulations while reinforcing work incentives and employment support to facilitate a return to work.
  • Job retention schemes should be targeted only to those jobs that are at risk of being terminated but viable in the medium/longer term. Requiring firms to carry part of the cost, stricter limits on duration and incentives to look for work and take up training are some policy levers that policy makers and social partners can mobilise in the coming months to this goal.
  • The coverage and adequacy of income support will need to be reviewed as the crisis evolves. If weak labour market conditions persist, there can be good reasons for extending unemployment benefit durations to prevent jobseekers from sliding too quickly into much less generous minimum-income benefits. The duration, targeting and generosity of emergency income support programmes put in place in the early months of the crisis should be re-assessed to ensure that support goes to the most needy. “Mutual obligations” requirements, which commit jobless benefit recipients to active efforts to find employment, should be progressively re-established where they have been temporarily suspended.
  • Jobseekers also need assistance in finding new work. Public and private employment services need to scale up their capacities and make larger use of digital services without giving up standard in-person meetings with people with weaker digital skills. Online and offline training can help jobseekers, as well as workers in job retention schemes, find jobs in sectors and occupations more in demand and counter the risk of long-term unemployment. Hiring subsidies, in particular if targeted to low-pay workers, can promote job creation.
  • Countries need to act quickly and help young people maintain their links with the labour market. Support for companies who offer jobs or work experience to young people have proven effective at promoting job creation. Effective outreach is crucial to re-establish contact with young people who lost their jobs or left school without finding employment. Youth Guarantees, which entitle all young people to a timely employment or training offer, can provide a good framework for ensuring that no jobless young person goes without support in the current crisis.

The jobs crisis precipitated by the Covid-19 health crisis looks set to be felt for years to come, with a recovery not expected until after 2021.  There is a real danger that this jobs crisis will lead to an increase in poverty and exacerbate existing inequalities.  The plan for Resilience and Recovery, the National Economic Plan and Budget 2021 must ensure that the jobs crisis we currently face does not turn into a social crisis.