Covid-19's impact on workforce is 10 times bigger than first months of 2008 financial crisis, OECD says

Unemployment in some of the biggest economies could rise from 5.3% in 2019 to 12.6% this year

The OECD believes European economies are shrinking as unemployment increases because of the impact of Covid-19 lockdowns. Bloomberg

The impact of Covid-19 on the workforce of the world’s biggest economies is 10 times larger than during the first three months of the 2008 financial crisis, according to the Organisation for Economic Co-operation and Development.

Unemployment in the OECD’s 37 member countries is expected to rise to 9.4 per cent this year, up from 5.3 per cent in 2019, if the outbreak is kept under control, the organisation, which is based in Paris, said in its latest employment outlook report on July 7.

Even then, it remains the worst unemployment figure since the Great Depression and could increase to 12.6 per cent this year if there is a second wave of infections.

Already, the number of hours worked declined by 12.2 per cent in the first three months of the outbreak, compared to 1.2 per cent during the first three months of the 2008 crisis.

“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,” the OECD said.

“The crisis will cast a long shadow over the world and OECD economies.”

The organisation said last month in its economic outlook that the world economy would suffer the biggest recession in a century.

It expects the world economy to shrink by 6 per cent this year before growing by 5.2 per cent in 2021, if the virus is contained. That view is gloomier than that of the International Monetary Fund, which predicted a 4.9 per cent contraction this year, with a sluggish recovery expected in 2021.

In the event of a second wave of infections, the world economy may contract by 7.6 per cent before growing by 2.8 per cent next year, the OECD said.

A recovery in unemployment rates across OECD countries will be gradual, remaining at or above the peak levels recorded during the 2008 crisis, according to the report.

Unemployment rates are projected to reach 7.7 per cent next year, if the virus is contained, or increase to 8.9 per cent in case of a second wave of infections.

Low-income workers, the self-employed, young graduates and women are bearing the brunt of the health crisis, which is widening pre-existing inequalities.

“Women have so far experienced greater declines in employment than men, unlike in the previous crisis,” the OECD said.

“Meanwhile, widespread childcare facility and school closures likely amplified their unpaid work burden at home.”

Low-income workers are 50 per cent less likely to work from home and twice as likely to stop working completely, compared to higher-paid peers.

Young graduates face “bleak prospects”, have a poor chance of finding jobs or internships and face the risk of long-term damage to their earning potential.

“We do not want to risk a lost generation,” Angel Gurria, OECD secretary general, said during a video conference as she pointed to a 60 per cent drop in jobs offered online.

Governments around the world took measures to curb the spread of the virus but some have started lifting restrictions to revive their economies.

“While the Covid-19 crisis has passed the first phase of lockdowns and business closures, the impact on the labour market, while already unprecedented, is likely to deepen significantly going forward,” the OECD said.

Changes in unemployment rates since the onset of the health crisis have varied between countries, reflecting their policy responses.

In the US, the world’s biggest economy, the unemployment rate jumped from its 50-year low of 3.5 per cent in February to 14.7 per cent in April 2020, the highest level on record, before declining to 11.1 per cent last month.

By contrast, the unemployment rate in the period up to May decreased by 1.2 percentage points in Italy and by 0.9 percentage points in Portugal, reflecting a shift towards inactivity as unemployed people stopped searching for jobs during the pandemic.

Governments will need to adapt their labour markets and social policies in the coming months to respond to the pandemic and the economic developments, the OECD said.

The organisation urged governments to act quickly to support the worst affected and provide jobseekers with advanced training or equip them with entirely new skills.

It also called for balanced, continued support to some sectors still affected by containment measures to protect jobs as economies reopen.

Mr Gurria expects a U-shaped recovery but said how long the bottom part of the U will be will depend on the spread of the virus.

Countries must also extend unemployment benefits and address social protection gaps for workers on irregular work contracts.

The crisis has exposed weaknesses in OECD economies and societies that will hold people back unless they are addressed, Mr Gurria said.

“In times of crisis, ‘normality’ sounds very appealing. However, our normal was not good enough for many people with no or precarious jobs, bad working conditions, income insecurity and limits on their ambitions,” Mr Gurria said.

“We need to capitalise on the momentum created by the strong initial national responses to the crisis and build better policies for better lives in the post-Covid[-19] world."