The coronavirus pandemic has triggered an economic crisis such as the world has never seen. The economic downturn was followed by an unprecedented rebound. It all happened so fast. It left us with a torrent of numbers and seemingly inextricable questions.
Welcome to PCR, a special limited series by The National, in which we try to make sense of the numbers and answer important questions on the Post Covid-19 Recovery.
Listen to prominent economists and business leaders as they explain the challenges and opportunities of a unique and often complex economic recovery.
Join Mustafa Alrawi, assistant editor-in-chief, as he explores the many features of the Post Covid-19 Recovery.
Episode 2 : Employment and the future of work
The pandemic has caused the loss of 255 million full-time jobs, or approximately four times greater than the number lost during the 2009 global financial crisis, according to the International Labour Organisation. That’s equivalent to $3.7 trillion in lost labour income.
The pandemic has not only disrupted the labour market, it also triggered many transitions and in some cases a deep transformation of working tasks and arrangements. What do job mismatches tell us about the labour market?
What are the underlying trends that are shaping the future of work?
Guests:
Petya Koeva Brooks, Deputy Director in the IMF's Strategy, Policy, and Review Department
Silja Baller , Insights Lead, Frontier Insights, the World Economic Forum
Lydia Boussour , Senior US Economist at Oxford Economics
Martin Hirt, Senior Partner at McKinsey and Company
Narrated by: Mustafa Alrawi, The National's assistant editor-in-chief
Episode transcript:
0:07
The recovery, albeit faster than initially anticipated, remains incomplete. And despite the strong rebound, pre-pandemic levels of employment in the OECD will not be reached before 2023, according to our projections.
Mustafa 0:35
We've just heard from Mathias Cormann, Secretary General of the OECD, talking about the strong economic recovery that remains incomplete. It's true that the post-Covid-19 recovery comes with some concerns, a few challenges and many unknowns. But economists are unanimous and unequivocal. The rebound is real and it is strong. But what about employment? What does the post-Covid-19 recovery look like in terms of job creation? And what are the latest employment numbers? And how do they compare to pre-pandemic levels? For economists and experts, the recovery may be measured in many ways: growth rate, consumer spending, manufacturing output, trade, and many other indices. For millions of workers around the globe however, the recovery comes down to one single word – jobs.
Mustafa 1:42
Welcome to PCR. I'm Mustafa Alrawi, your host on this special podcast series from The National where we discuss the post-Covid-19 recovery. In the previous episode, we explored some of the features of the economic recovery that make it unique. We talked to prominent economists and leading experts in our attempt to understand the unevenness of the recovery across industries and countries. If you haven't listened to Episode One, please check it out. On this episode, we're focusing on employment as we try to make sense of the latest numbers and complex trends.
2:17
Thirty per cent would be so turned off by having to be full-time in the office that they would consider switching a job.
2:24
Workers right now have the upper hand in the labour market.
2:28
Employment recovery is lagging the output recoveries.
Mustafa 2:34
The coronavirus pandemic took a huge toll on global jobs in 2020. Many sectors and industries were hit hard, forcing millions out of work or, in many cases, causing huge disruptions for both employers and employees. According to the UN's International Labour Organisation, 8.8 per cent of global working hours were lost in 2020 – compared to the fourth quarter of 2019. But how does that translate in terms of job losses? That is the equivalent of 255 million full-time jobs, or approximately four times greater than the number lost during the 2009 global financial crisis, according to the International Labour Organisation. That's equivalent to $3.7 trillion in lost labour income. In the US, the situation was truly unprecedented. Just in two months, from February to April 2020, there were more than 22 million people who lost their jobs. That's more than twice the job losses we've seen following the financial crisis of 2008. In the EU, the pandemic caused the loss of 5.5 million jobs, the sharpest decline since 1995, according to Eurostat.
Mustafa 3:58
With massive vaccine roll-outs and countries opening their economies, employment started recovering. While economic output has surpassed pre-pandemic levels, the labour market is nowhere near the pre-pandemic situation. Economists tell us employment recovery typically takes 12 to 18 months to adjust to growth levels. But that's not all. With post-Covid-19 recovery come many shifts and new trends that are shaping the labour market for years to come. And maybe changing the way people want to work. One of the oddities of the post-Covid-19 recovery has been labour shortages in some industries, and a noticeable mismatch between job offers and demands.
Ayesha: 4:47
Lydia Boussour, Senior US Economist at Oxford Economics:
4:51
This is one of the striking features of this crisis. We've been hearing a lot about labour shortages. And both large and small businesses have been complaining in the surveys that we track about the fact that they can't find qualified workers. What's really happening is that you had millions of workers who dropped out of the labour force, and some have already come back, but you still have about five million workers who are sitting on the sidelines and are not actively looking for a job. And there are a few reasons for that. The first one is just virus fear, and the fact that people are still afraid to come back to work, especially given the renewed virus flare-ups we have seen in the prior months. So these people are mostly workers in these high-contact services industries, where the risk of contracting the virus is quite elevated. A second reason, we think, is also childcare issues. There were a lot of parents, especially women, who had to care for their children over the past year, because schools were closed and operating remotely. And also childcare centres were still closed. So that was also an issue that was preventing them from rejoining the workforce. And lastly, although we think to a lesser extent, the early retirement trend that we have seen at the onset of the pandemic, with older workers deciding to retire early, because they were scared of this health situation. And also, the extra unemployment benefits, were likely also a factor that has been holding back the supply of labour. If we think about what's going to happen in the coming months, we do think that the recovery in labour force participation will accelerate. And that we will start seeing some of these sidelined workers coming back into the labour force. You have many schools across the country that have resumed in-person learning, and that should allow many parents to start looking for a job again. And at the same time, the extra unemployment benefits expired earlier this month, and that could provide a marginal boost to employment as well. Now, importantly, in terms of virus fear, vaccination rates continue to rise. That should help bring back some workers as well. And that should help ease some of the labour shortages that we hear about. So we do think that the situation will probably improve in the coming months.
Mustafa 7:30
Labour shortages and mismatches will probably smooth out gradually as governments withdraw unemployment benefits and job support. But the impact of the crisis on the labour market runs deeper, and some trends will persist long after the end of the pandemic. The crisis didn't just disrupt the job market. It has also triggered new work trends and, in some cases, has accelerated structural transitions that would transform the nature of tasks and working arrangements between employers and employees.
Ayesha 8:00
Silja Baller, Insights Lead, Frontier Insights, the World Economic Forum:
8:06
I would probably differentiate between two different dynamics. So for one, there's the nature of tasks that are changing. And then secondly, the nature of working arrangements are changing. On the first one, pre-crisis, we already had – for many, many years – the phenomenon that automation was displacing, in particular, routine and middle-skilled jobs. Whenever there was a recession, the recoveries tended to be jobless, especially for the middle skilled jobs for a few cycles. So that means jobs which disappeared during recession were automated as economic activity came back. And the empirical evidence that we have so far from the last few years shows that the effect has been less strong on the number of jobs still, but there has been an effect on wages.
And we see this as well in some of the aggregates, and that the labour share of income has been shrinking for some years. Now, when the crisis hit, we saw different labour market experiences across countries depending on what the policy interventions were. So in some cases, the workers were protected, but not necessarily the ties between employers and employees. And in those cases, we're still seeing more mismatch and we're seeing jobs coming back. But the positions aren't necessarily being filled. Then there was a different type of intervention where policy tried to really keep the relationship between employers and employees in place and supported wages. So this was the case in many European countries, for example.
So here we saw less disruption in labour markets. And then there were other situations where it was not possible for lack of resources to give support, and that was especially the case also in economies with large informal sectors.
And there, the consequences have been deeper labour market scarring, so to speak. Now, what's interesting in some of the advanced economies is that we've seen temporary wage increases. The question is, are these wage increases temporary, or are they more permanent? And they seem to be due to a mix of reasons, including higher reservation wages, but also labour shortages and skills shortages. So something that's becoming apparent, now that the economy is restarting, is that skills requirements have changed, there's a high demand for green and digital skills. But the rescaling systems have not yet been put in place or scaled up to the extent that is needed, which is contributing to higher wages. And if you're putting all these different considerations and forces together, our latest chief economist survey suggests that we can expect the upward wage pressures, which are happening for certain jobs, at least to stay around over the medium run. Then there's also an expectation that ultimately automation will again become a stronger force. So, in the longer run, there's probably going to be downward pressure on wages again. And then, as far as the second part of the question is concerned, the nature of working arrangements is changing. I think it's too early to tell what the ultimate model is going to be, as I think workers and companies are still finding their feet on this, but what's clear is that definitely the experience broke the psychological barrier of working from home. So we can expect some kind of hybrid model going forward.
Mustafa 11:40
Unlike during previous crises, governments in developed and high income economies were fast to act and provide substantial support for jobs, companies and households. At the height of the crisis, job retention schemes supported approximately 60 million jobs – more than 10 times as many as during the financial crisis of 2008 – saving up to 21 million jobs. What governments did during the pandemic has certainly limited the impact on employment. What governments are doing now during the recovery is instrumental in the preparation of a healthy and sustainable labour market. Economists now worry that withdrawing support too soon, would risk jeopardising the recovery. On the other hand, maintaining support for too long, would also discourage millions from re-entering the labour market. The pandemic turned the world into one giant lab, where real time working experiments were improvised and developed by millions of workers around the world. Companies didn't really have a choice, businesses and workers needed to adapt to unprecedented situations. Now that the economic recovery is a reality, everyone is wondering about the future of work. Did the pandemic signal the end of the office as some suggested during the early days of the virus outbreak? Or are we witnessing the emergence of a completely new hybrid working model? It seems that both employees and employers are pondering these questions, and that there are a multitude of answers adapted to various industries and business sizes.
Ayesha 13:23
Martin Hirt, Senior Partner at McKinsey and Company:
13:26
The remote working situation has, of course, relevance for a very different part of the workforce. And when we looked into that – let me start with the US and then get to other geographies later. When we looked into that the shift is marked – quite strong, actually. So, 70 per cent of the people surveyed indicate that they would prefer jobs where telecommuting was an option. Seventy per cent of people surveyed felt that a job that allowed them to work remotely, at least for a part of their time, was important. Thirty per cent said they would consider switching their jobs if their employer demanded a fully on-site model and insisted on that. So 30 per cent would be so turned off by having to be full-time in the office that they would consider switching a job. And when we talk to the employers, 70 per cent of the US employers indicated that they see sharp productivity increases and at worst a flat productivity picture emerging from the Covid-19-induced remote work model. That all together suggests that the chances of some sort of a hybrid model emerging for a lot of employers are quite high. So we would expect that activities that can be done effectively remotely like analysing and processing information or running your administrative duties, updating your knowledge and learning, routine communication with customers – that those things will actually primarily move or stay remote. Activities that have to do with customer interactions like negotiations, or relationships that have to do with internal interactions, like onboarding new employees, brainstorming, innovating, or coaching and mentoring, those types of activities are likely to go back on site, because it’s just really hard to do them remotely. There is a big difference in terms of the sectors that are suitable. So if you think, for example, about finance and insurance, 80 per cent of the workforce has the potential to stay at least partially remote. In IT and telecom, it's about 50-60 per cent, that could go three to five days fully remote. And maybe another 20 per cent for one to three days remote. In pharma and MedTech, those numbers are more in the 20 to 30 per cent range. Manufacturing, maybe 20 per cent range. And then if you get to any sort of hospitality, accommodation and food services, you're down to maybe a few percentage points. So very big differences across sectors, but also very big differences across countries. When we looked at the survey results across countries, countries like the United States, Germany and the UK, were very strong in terms of indicating that they could go potentially two, maybe even five days. So in the 40 to 50 per cent range as a country across all jobs surveyed, [was the number of] people who could go several days a week, remote. If you go to countries like China and India, those numbers are down, in sort of the 10 to 20 per cent range. So again, very big differences. So it's very hard to say globally, this is what's going to happen, but I think summarising, we will see in certain countries and certain sectors, definitely hybrid, maybe even fully remote models. And that has just been accelerated tremendously by the pandemic.
Mustafa 17:26
The most striking example of jobs mismatch is in the United States. The US Labour Department has reported that job openings reached 10.9 million in July 2021, the most on record dating back to 2000. Yet there were roughly 8.7 million people considered unemployed during that same month, which is the biggest gap of its kind between available jobs and the unemployed since the Labour Department started keeping track of job openings. These imbalances are acute in the US, but they are reported elsewhere in the world. Will the current situation lead employers and employees to reconsider existing work arrangements and agree on a more flexible framework?
Ayesha 18:07
Lydia Boussour, Senior US Economist at Oxford Economics:
18:11
I think there is also something interesting in terms of worker preferences. But a key question is how much companies will be willing to accommodate these new preferences. Employers are really struggling to find workers. So there is this idea that workers right now have the upper hand in the labour market and that employers might have to remain flexible with the working arrangements that they offer if they want to attract the right applicants and also retain some talents. So I do think that as the health situation improves and as we move further along in this economic recovery, there is a high chance that remote work is here to stay going forward. And that could have implications for the workplace and the way companies operate. But, at a higher level, it could have implications as well for the overall economy and for productivity gains going forward.
Mustafa 19:14
Employment imbalances we are observing during the current economic recovery are transitory, and economists are confident job offers will adjust the demand during 2022. What is more concerning, however, is employment inequality. These inequalities predate the pandemic. The crisis has just exacerbated employment inequalities. Will the post-Covid-19 recovery see further inequalities in the job market?
Ayesha 19:39
Petya Koeva Brooks, Deputy Director in the IMF's Strategy, Policy, and Review Department:
19:44
This is such an important topic and back in April, we had a whole report looking exactly on what's been happening in the job market across the world in advanced and emerging economies. And what we saw were some of those inequalities that you're referring to. So we've seen essentially the low-skilled, the young, and in some cases, the women being more affected by this crisis than others. Exactly what we showed was that the trends had been accelerated as a result of the pandemic. And all that means, I think, is that the burden is going to be even higher on policies to be able to tackle some of these issues and make sure that, there are tools, there's training provided for people. Especially for young people, to be able to make the transitions across sectors in some cases and to be able to re-enter the job market. What we also find is that, if you've lost a job, the cost of re-entering is much higher than if you're just switching from one job to another. So, another aspect that we are seeing is that the employment recovery is lagging the output recovery. So I'm sure we'll be talking a lot more about this in the future. But it's just to say that this is a topic that really warrants utmost attention by policymakers.
Mustafa 21:39
What we've just heard from Petya Koeva Brooks of the IMF is echoed by many leaders and international organisations. There's a real risk that not all workers and social groups will benefit from the economic recovery. This risk is amplified by increasing investment by companies in automation and other labour-saving solutions.
Ayesha 22:00
Lydia Boussour, Senior US Economist at Oxford Economics:
22:04
So we have seen a lot of investment in labour-saving technologies, such as automation, especially in low-paid and labour-intensive industries, where work tends to be repetitive. This is where we think there is some potential in terms of investments in technologies. Coming back to the labour shortages, we think that these are the industries where we could see some continuation of these trends. As they struggle to bring some workers, they could continue to invest in labour-saving technologies and automation. So this is certainly a trend that is likely to continue going forward. And we think that this has the potential to boost productivity as well. So going forward, I think, with this trend of automation and technology continuing, some workers can expect, especially those that are doing repetitive tasks in low-paid industries, that they might have to find other types of occupation going forward. So that's certainly something that could play out. The healthcare sector has been a sector where we have seen a lot of, you know, technological adoption during the crisis. So that's also a sector where potentially the workforce could have to adapt going forward.
Mustafa 23:41
Reports and surveys depict a complex situation facing workers in the coming months despite the recovery, or maybe because of the economic recovery. On the one hand, we're seeing companies struggling to attract skilled labour, and in some cases offering a raise in wages. On the other, companies are increasing their investments in labour-saving technologies and automation. It seems that companies across industries are determined to avoid the kind of disruptions they faced during the pandemic. And what do these two trends mean for workers? Well, the economists we spoke to tell us workers who want to benefit from the post Covid-19 recovery should be prepared to show a high degree of technological adaptation, develop new skills, and even be prepared to switch jobs. Listen to OECD Secretary General Mathias Cormann delivering some key remarks at the launch of the OECD employment outlook back in July 2021. He was very clear in calling for targeted measures, providing training, learning and upskilling for large groups of workers.
24:47
It will be very important to get policy settings right to encourage business investment and job creation as well as to drive the necessary upskilling, reskilling and skills-matching required to ensure everyone has the best possible opportunity to participate and benefit from the recovery. Without well-targeted measures, some of these short-term effects risk becoming long-term scars. Young workers for example, saw large reductions in the hours of work – nearly twice as much as for prime-aged and older workers at the peak of the crisis back in 2020. Similarly, among those with low levels of education, half of the total hours lost at the peak of the crisis were due to increases in unemployment. In contrast, for the highly educated almost all the decline in hours was driven by reductions in working time. The second priority is investing in effective skills policies to help businesses, start-ups and workers transition to occupations and sectors with high growth potential, moving forward. All efforts should be made to promote a culture of lifelong learning and linking training individuals rather than jobs. Training programmes should address bottlenecks to participation and seek to engage those who need training the most. Indeed, workers whose jobs are at high risk of automation are only half as likely to engage in adult learning than their peers in jobs with lower risk of automation.
Mustafa 26:33
The post-Covid-19 recovery, PCR, comes with challenges and opportunities for millions of workers around the world. The strong economic rebound does not necessarily mean brighter employment prospects for all. On this episode of PCR, we've heard from leaders and economists warning of serious risks to employment and calling on policymakers and private companies to focus on massive upskilling and reskilling programmes. It seems that the password to unlock the employment potential of the post Covid-19 recovery is reskilling. We will continue tracking the post-Covid-19 recovery. And in coming episodes, we'll discuss trade disruptions, shortages and supply bottlenecks. We'll try to understand more about what is causing them and how they might impact the long-term recovery. Thank you for listening. If you've enjoyed the show, please do subscribe on Apple Podcasts, Spotify, or wherever you get your audio content.