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TWN Info Service on Finance and Development (Sept20/06)
25 September 2020
Third World Network


UN: COVID-19 leading to substantial labour income losses, says ILO
Published in SUNS #9197 dated 25 September 2020

Geneva, 24 Sep (Kanaga Raja) – The high losses in working hours caused by the COVID-19 pandemic have resulted in substantial losses in labour income for workers around the world, the International Labour Organization (ILO) has said.

In the sixth edition of its Monitor on COVID-19 and the world of work, the ILO said estimates of labour income losses (before taking into account income support measures) suggest a global decline of 10.7 per cent, or US$3.5 trillion, during the first three quarters of 2020, compared with the corresponding period in 2019.

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, it added.

“Just as we need to redouble our efforts to beat the virus, so we need to act urgently and at scale to overcome its economic, social and employment impacts. That includes sustaining support for jobs, businesses and incomes,” said ILO Director-General Guy Ryder.

“As the United Nations General Assembly gathers in New York, there is pressing need for the international community to set out a global strategy for recovery through dialogue, cooperation and solidarity. No group, country or region can beat this crisis alone,” he added.

According to the ILO Monitor, altogether, 94 per cent of the world’s workers currently live in countries with some sort of workplace closure measure in place.

This share reached a peak of 97 per cent on 25 April 2020, then slowly declined until mid-July, after which it started to increase slightly again.

Lockdowns of workplaces for all but essential workers (that is, the most stringent of possible measures) continue to affect a sizeable share of the global workforce, said the ILO.

As at 26 August 2020, almost one third (32 per cent) of the world’s workers were living in countries with such lockdowns.

More recently, the most stringent workplace closure measures have begun to be targeted at highly infected areas in countries, rather than covering a country’s entire economy.

A further 50 per cent of the world’s workers were living in countries with required workplace closures for some sectors or categories of workers (again, with this type of closure increasingly being targeted at specific areas within a country), while just 12 per cent of workers were living in countries that have only recommended workplace closures in place.

WORKING HOUR LOSSES

According to the ILO, its latest estimates indicate a considerably greater decline in global working hours during the first three quarters of 2020 than was previously estimated.

Furthermore, the severe and protracted economic impact of the pandemic has significantly aggravated the outlook for the fourth quarter, it said.

During the first quarter of 2020, an estimated 5.6 per cent of global working hours (up from 5.4 per cent as estimated previously) were lost relative to the fourth quarter of 2019, equivalent to 160 million full-time jobs (assuming a 48-hour working week).

Given the earlier spread of the virus in China (which implemented strict containment measures already in late January) and other countries in Asia and the Pacific, it is not surprising that this region accounted for approximately 80 per cent of the global reduction in working hours during the first quarter of the year, said the ILO.

More specifically, the Eastern Asia sub-region experienced a decline in working hours of 2.0 per cent, or 100 million full-time equivalent (FTE) jobs, during that quarter.

The ILO said since the impact of the crisis has proved to be much greater than previously estimated, particularly in developing countries, the estimated decline in global working hours in the second quarter of 2020, relative to the fourth quarter of 2019, has been further revised upward to 17.3 per cent (up from the previous estimate of 14.0 per cent), which is equivalent to 495 million full-time jobs.

Lower-middle-income countries were the hardest hit, experiencing a decline of 23.3 per cent (and also the largest upward revision of all the income groups, namely 7.2 percentage points, the previous estimate being 16.1 per cent).

The Americas suffered a reduction in working hours of 28.0 per cent, or 105 million FTE jobs, in the second quarter of 2020, compared with the previous estimate of 18.3 per cent.

The ILO said this is the largest loss in hours worked among the major geographical regions and also represents the largest upward revision since the fifth edition of the ILO Monitor.

Within this region, South America and Central America had particularly high working-hour losses in the second quarter, at 33.5 and 35.8 per cent, respectively.

In contrast, Northern America, including Canada and the United States of America, experienced a smaller, yet still substantial, decline of 18.4 per cent in working hours.

The hours worked in Europe and Central Asia are estimated to have declined by 17.5 per cent, or 55 million FTE jobs, in the second quarter, up from the estimate of 13.9 per cent presented in the previous edition of the ILO Monitor.

The largest losses in this region are estimated to have occurred in Southern Europe (23.9 per cent), followed by Central and Western Asia (23.3 per cent), Northern Europe (16.6 per cent), Western Europe (14.8 per cent), and Eastern Europe (13.6 per cent).

In Asia and the Pacific, the total working-hour losses for the second quarter of 2020 are estimated at 15.2 per cent, or 265 million FTE jobs, up from the previous estimate of 13.5 per cent.

Among the sub-regions, the greatest reduction in working hours is estimated to have occurred in Southern Asia (with a decline of 27.3 per cent in the second quarter), followed by South-Eastern Asia and the Pacific (16.7 per cent) and Eastern Asia (5.5 per cent).

In Southern Asia, the public health situation and strict control measures have resulted in major labour market disruptions.

In contrast, in Eastern Asia, the spread of the pandemic was quickly brought under control, resulting in relatively small losses during the second quarter, said the ILO.

Reflecting contrasting trends, the estimated working-hour loss was revised upward by 9.4 percentage points for Southern Asia but downward by 4.9 percentage points for Eastern Asia.

Working hours in the second quarter of 2020 are estimated to have declined by 16.9 per cent, or 10 million FTE jobs, in the Arab States, an upward revision of 3.7 percentage points.

In Africa, the total working-hour losses in the second quarter of the year are estimated at 15.6 per cent, or 60 million FTE jobs, up from the previous estimate of 12.1 per cent.

In terms of sub-regions, the new estimates for working-hour losses in the second quarter indicate that Northern Africa experienced the sharpest decline (21.2 per cent), followed by Southern Africa (20.3 per cent), Central Africa (14.7 per cent), Eastern Africa (14.0 per cent) and Western Africa (13.9 per cent).

The ILO said that its estimates of working-hour losses for the third quarter of 2020 point to a decline in global working hours of 12.1 per cent, equivalent to 345 million full-time jobs, relative to the pre-crisis baseline (fourth quarter of 2019).

“Although it is an improvement on the global working-hour losses of 17.3 per cent estimated for the second quarter, this still represents a considerable decline, suggesting that full job recovery continues to be hampered by the persisting public health and economic challenges posed by the COVID-19 crisis.”

According to the ILO, from a regional perspective, the Americas are expected to remain the most affected region in the third quarter (a decline in working hours of 19.8 per cent).

The losses of working hours in the Arab States are estimated at 12.4 per cent, closely followed by Europe and Central Asia (11.6 per cent), Africa (11.5 per cent) and Asia and the Pacific (10.7 per cent).

Across income groups, lower-middle-income countries are expected to register the highest rate of hours lost, at 15.6 per cent, a situation similar to that of the second quarter.

Low-income countries are expected to register a decline of 11.0 per cent, while upper-middle-income and high- income countries are projected to experience the smallest losses, namely 10.4 and 9.4 per cent, respectively.

In light of the rapidly evolving situation in recent months, the ILO said that the projections for the fourth quarter have been updated.

In this context, it highlighted three scenarios: (a) a baseline scenario, which uses the latest projections of gross domestic product (GDP) growth; (b) an optimistic scenario, which assumes that working hours will recover at a faster rate than GDP growth; and (c) a pessimistic scenario, which assumes a further wave of strict workplace closures.

The new projections for working-hour losses in the fourth quarter are greater than the previous estimates, it said.

Under the baseline scenario, global working-hour losses are expected to amount to 8.6 per cent in the fourth quarter of 2020, equivalent to 245 million full-time jobs, representing a significant upward revision from the projection of 4.9 per cent presented in the fifth edition of the ILO Monitor.

Under the baseline scenario, working-hour losses are projected to be 14.9 per cent in the Americas in the fourth quarter, while losses could fall to 7.3 per cent in Asia and the Pacific.

In all regions, working hours will remain far below the levels seen in the fourth quarter of 2019, indicating that the severe job crisis is likely to continue well into 2021, said the ILO.

In the pessimistic scenario, global working-hour losses in the fourth quarter of 2020 are projected to reach 18.0 per cent, equivalent to 515 million full-time jobs.

Under the optimistic scenario, working-hour losses would still amount to 5.7 per cent in the fourth quarter, or 160 million FTE jobs, said the ILO.

LABOUR INCOME LOSSES

Working-hour losses translate into a substantial loss of income for workers around the world, said the ILO.

According to the ILO Monitor, global labour income (which includes wages for employees and part of income for the self-employed) is estimated to have declined by 10.7 per cent during the first three quarters of 2020, compared with the corresponding period in 2019.

The ILO said that the estimates show that the loss in labour income reaches 15.1 per cent in lower-middle- income countries, 11.4 per cent in upper-middle-income countries and 10.1 per cent in low-income countries.

In contrast, workers in high-income countries experience a labour income loss of 9.0 per cent. Moreover, drops in income in these countries are more frequently offset by income replacement schemes, said the ILO.

Across geographical regions, income losses are highest in the Americas, followed by Africa.

In total, the global loss in labour income during the first three quarters of 2020 amounts to US$3.5 trillion (using 2019 market exchange rates), which is equivalent to 5.5 per cent of global GDP for the first three quarters of 2019.

When those significant losses are not mitigated by other sources of income, such as social protection transfers, they can push households into poverty while reducing aggregate demand, said the ILO.

“If households deplete their savings over time and stimulus packages are phased out, the fall in aggregate demand could steepen, reducing incomes further and rendering a job recovery even more difficult,” it added.

THE FISCAL STIMULUS GAP

The ILO Monitor noted that in response to the massive labour market disruptions, governments have launched fiscal stimulus programmes on an unprecedented scale, particularly in high-income countries.

The Monitor examined the extent to which fiscal policy has helped to mitigate working-hour losses during the second quarter of 2020 in countries for which data are available.

ILO estimations show that, on average, an increase in fiscal stimulus by 1 per cent of annual GDP would have reduced working-hour losses by 0.8 percentage points in the second quarter of 2020.

To put this effect into perspective, the estimated working-hour losses would, on average, have been as high as 28 per cent if no fiscal stimulus had been implemented, it said.

“This also suggests that the comparatively smaller stimulus programmes in low- and middle-income countries may account for at least part of the large working-hour losses estimated for those countries.”

Although expansionary fiscal policy has played a significant role in supporting economic activity and preventing working hours from falling further, global fiscal stimulus has been concentrated in high-income countries, said the ILO.

Fiscal space remains limited in emerging and developing economies, especially in low-income countries.

This imbalance between countries is even more striking when the amount of fiscal stimulus is compared with the magnitude of labour market disruptions.

According to the ILO, the results show that global fiscal stimulus is equivalent to 4.3 per cent of total working hours in 2019.

In comparison, over the first three quarters of 2020, the average global working-hour losses were around 11.7 per cent.

Based on its analysis, the ILO said the fiscal stimulus gap currently stands at US$982 billion in low-income and lower-middle-income countries, where fiscal space is most limited (US$45 billion in low-income countries and US$937 billion in lower-middle-income countries).

This gap is equivalent to approximately 14 per cent of aggregate GDP for these countries in 2019.

Significantly, in low-income countries, the stimulus gap amounts to less than 1 per cent of the total value of the above-the-line fiscal stimulus measures announced by high-income countries.

The ILO noted that in contrast to many emerging and advanced economies, developing countries tend to have far more modest social protection schemes to compensate for job-related income losses, which further widens the gap between the policy response and the impact of the crisis in these countries.

Moreover, it said, many of the fiscal measures announced in developing countries are being funded through a reallocation of existing budgetary resources, including reductions in capital expenditure and the public sector wage bill.

“Taken together, these figures provide a stark quantitative measure of the challenges faced by low-income countries, in particular the least developed economies, as they attempt to mitigate the economic and labour market impacts of the pandemic,” said the ILO.

 


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