Government economic and social policy interventions vital to tackle workplace closures and labour income losses

The global economic and social outlook is shrouded in uncertainty, but we know that the world will be much poorer than it would have been without the virus. Global income could be USD 7 trillion lower by the end of 2021 than what the OECD projected less than a year ago in November 2019 (See OECD, Coronavirus (COVID-19): Living with uncertainty ). The world will also be more unequal. The pandemic has, in many cases, exacerbated pre-existing inequalities, accelerating trends already in place (See J. Stiglitz, Conquering the Great Divide ).

The COVID-19 pandemic has had a more negative impact on economic activity in the first half of 2020 than anticipated and the recovery is projected to be more gradual than previously forecast (See IMF, World Economic Outlook Update ).

The downturn in 2020 affects both advanced economies and emerging market and developing economies. Over 95 percent of countries are projected to have negative per capita income growth in 2020 according to IMF forecasts. The cumulative hit to GDP growth over 2020–21 for emerging market and developing economies, excluding China, is expected to exceed that in advanced economies.

Labour markets around the world are still reeling from the COVID-19 crisis. With activity in labour-intensive sectors like tourism and hospitality expected to remain subdued and the looming menace of the reintroduction of necessarily stricter measures to contain the COVID-19 pandemic, a full recovery in the labour market may take a while, worsening inequalities and increasing poverty.

Higher levels of unemployment and inactivity
Workplace closures continue to disrupt labour markets around the world - 94 per cent of workers globally reside in countries with workplace closures of some sort – leading to high levels of working-hour losses. In the second quarter of 2020, 17.3 per cent of total working-hours were lost, the equivalent of 495 million jobs, relative to the fourth quarter of 2019. Lower-middle-income countries are the hardest hit, having experienced an estimated decline in working hours of 23.3 per cent (240 million jobs) in the second quarter of the year.

Working-hour losses are expected to remain high in the third quarter of 2020, at 12.1 per cent or 345 million jobs. Moreover, projections for the fourth quarter suggest a bleak outlook with 8.6 per cent of total working-hours lost, or 245 million jobs under a baseline scenario (See ILO, ILO Monitor: COVID-19 and the world of work. Sixth edition. Updated estimates and analysis ).

Working-hour losses are reflected in higher levels of unemployment and inactivity, with inactivity increasing to a greater extent than unemployment. Rising inactivity is a notable feature of the current job crisis calling for strong policy attention as it is much harder to bring back inactive people in the labour market than the unemployed.

The decline in employment is greater for women than for men in most countries (For the impact of the crisis on women, see also ILO Monitor: COVID-19 and the world of work. Fifth edition ). Women’s relatively high representation in the sectors hardest hit by lockdown orders have indeed translated into larger declines in employment for women than men in numerous countries; and evidence also suggests that lockdowns and stay-at-home orders have increased unpaid care workloads, with the increased hours falling disproportionately on the shoulders of women.

Substantial losses in labour income leading to higher levels of poverty and inequality
These high working-hour losses have translated into substantial losses in labour income (before taking into account income support measures). ILO estimates suggest a global decline of 10.7 per cent during the first three quarters of 2020 (compared with the corresponding period in 2019), which amounts to US$3.5 trillion, or 5.5 per cent of global gross domestic product (GDP). Labour income losses are highest in middle-income countries, reaching 15.1 per cent in lower-middle-income countries and 11.4 per cent in upper-middle-income countries.

When those significant losses are not mitigated by other sources of income, such as social protection transfers, they can often push households into poverty. Formal employees are the most likely to benefit from social security benefits or other public sector measures that cushion the blow of labour income losses. The net income loss for this group will therefore be smaller. In contrast, the 60 per cent of global workers who are informal and thus unlikely to be protected by social protection schemes are particularly vulnerable to income loss and poverty during the COVID-19 crisis.

The rate of relative poverty, which is defined as the proportion of workers with monthly earnings that fall below 50 per cent of the median earnings in the population, is expected to increase by almost 34 percentage points globally for informal workers, ranging from 21 percentage points in upper-middle-income countries to 56 percentage points in lower-middle-income economies (See ILO, ILO Monitor: COVID-19 and the world of work. Third edition. Updated estimates and analysis ). This is in line with the World Bank’s new poverty projections, which suggest that by 2021 an additional 150 million people will have fallen into extreme poverty, living on less than $1.90 per day (See World Bank. Poverty and Shared Prosperity 2020: Reversals of Fortune ).

The pandemic has exposed, and in many cases exacerbated, pre-existing inequalities. In many countries, income inequality increased sharply since the 1980s, with adverse social and economic consequences. Various intersecting inequalities have left many workers vulnerable to the effects of COVID-19. Indeed, the impact of COVID-19 has fallen particularly heavily on many of the 2 billion workers who are in informal employment, as well as on workers in jobs with little protection, such as temporary workers, workers under short-term contracts and many of the world’s domestic or migrant workers. Inequalities also play out in what happens to people when they catch the virus. While some have access to sick leave, health services and continue to receive a salary, for many of those at the bottom of the income distribution, the consequences of COVID-19 have been catastrophic. In “building back better” in the recovery to the crisis, urgent priority should thus be devoted to strengthen measures and policies to reduce inequalities and ensure a fair share of the fruits of progress to all.