TWN Info Service on UN Sustainable Development (Oct21/09)
29 October 2021
Third World Network

Labour: Covid-19 pandemic stalls global labour market recovery, says ILO
Published in SUNS #9448 dated 29 October 2021

Geneva, 28 Oct (Kanaga Raja) -  Global labour market recovery has stalled in 2021 from the shock of the Covid-19 pandemic, with little progress being made since the fourth quarter of 2020, according to the International Labour Organization (ILO).

In its latest report on labour market developments, the ILO said that global working hours in 2021 are estimated to remain significantly below the level attained in the last quarter of 2019, at -4.5 per cent (equivalent to 131 million full-time jobs) in the first quarter of this year, -4.8 per cent (140 million full-time jobs) in the second quarter and -4.7 per cent (137 million full-time jobs) in the third quarter.

However, the ILO said this aggregate picture masks great divergence between countries. Working hours in high- and upper-middle-income countries tended to recover in 2021, while both lower-middle and low-income countries continued to suffer large losses, it added.

The ILO also said that progress in vaccination has emerged as a critical factor for labour market recovery.

"In early October, the share of fully vaccinated people globally reached 34.5 per cent - however, with considerable differences between high-income (59.8 per cent) and low-income countries (1.6 per cent)."

Higher vaccination rates are associated with less stringent workplace restrictions, it noted.

"The current trajectory of labour markets is of a stalled recovery, with major downside risks appearing, and a great divergence between developed and developing economies," said ILO Director-General Guy Ryder.

"Dramatically, unequal vaccine distribution and fiscal capacities are driving these trends and both need to be addressed urgently," he added.

"At the ILO, we have already started to act. Last June, the International Labour Conference adopted a Global Call to Action for a human-centred COVID-19 recovery, a roadmap that commits countries to ensuring that their economic and social recovery from the crisis is fully inclusive, sustainable and resilient," said Mr Ryder.

"It is time to implement this roadmap, which is fully aligned with and supports the UN's Common Agenda and its Global Accelerator for Jobs and Social Protection," he added.

INCREASING DISPARITIES IN LABOUR MARKET

According to the ILO, the labour market situation in 2021 continues to be impacted by the evolving dynamics of the pandemic.

The roll-out of vaccination campaigns has helped some countries combat the virus and open up, but this has been mainly concentrated in advanced economies, it said.

In early October, the share of fully vaccinated people globally reached 34.5 per cent, but with large differences between countries.

While high-income countries have the highest percentage of fully vaccinated people at 59.8 per cent, the proportion is much lower at 14.6 per cent in lower-middle-income countries and only 1.6 per cent in low-income countries.

This "great unevenness in vaccination" is also reflected in regional figures, said the ILO report.

In the Americas, Europe and Central Asia, and the Arab States, more than 40 per cent of the population was fully vaccinated by early October.

Vaccination rates have followed a similar trend in Asia and the Pacific (38.4 per cent) but are still lagging behind other regions, though with substantial differences across countries, while in Africa, progress in vaccination has been very slow (4.6 per cent).

As vaccination rates have increased, workplace closures (WPC) are currently on a downward trend, said the ILO.

While most workers still live in countries with some form of workplace restrictions, the strictest form of closure (economy-wide required closures for all but essential workplaces) has nearly disappeared (affecting less than 1 per cent of the employed globally in early October 2021, compared to a peak of 41 per cent in April 2020).

Europe and Central Asia has seen a significant decrease in restrictions as vaccinations progressed in the course of 2021. In contrast, restrictions in Asia and the Pacific have become more widespread in recent months, with a large majority of workers residing in countries with some form of current workplace closure measures. At the same time, these measures have become increasingly targeted at specific areas.

Evidence shows that higher rates of vaccination are associated with less stringent workplace restrictions.

Using a scale of workplace restrictions ranging from 1 (most stringent) to 5 (least stringent), the ILO said that an average of 4.2 per cent of the population was fully vaccinated among countries with the most stringent restrictions, while the share was 13.2 per cent among countries with the least stringent restrictions.

STALLED GLOBAL RECOVERY

The ILO report said that after some significant gains in the second half of 2020, the recovery in working hours has stalled during 2021.

During the third quarter of 2021, it is estimated that global hours worked (adjusted for population aged 15-64) were still 4.7 per cent below the level of the fourth quarter of 2019 (the pre-crisis benchmark), equivalent to the loss of 137 million full-time jobs. The first and second quarters of 2021 saw similar deficits in working hours (-4.5 and -4.8 per cent, respectively).

The ILO said this global picture is of a "great divergence" between richer and poorer economies, which reflects, to a large degree, the evolution of the pandemic, and the uneven availability of fiscal stimulus and vaccines.

It noted that high-income countries have experienced a stronger but still incomplete recovery, with working hours still 3.6 percentage points lower in the third quarter of 2021 than the pre-crisis benchmark (though this represents an improvement on the 5.2 per cent deficit observed in the last quarter of 2020).

In contrast, low- and lower-middle-income economies, which have the lowest vaccination rates combined with limited fiscal stimulus, suffered setbacks in recovery.

In low-income countries, working hours decreased further, from a gap of 3.7 per cent in the last quarter of 2020 to 5.7 per cent in the third quarter of 2021.

Lower-middle-income countries saw a similar deterioration in the gap in working hours from 5.6 per cent to 7.4 per cent, while working hours in upper-middle-income countries recovered at the beginning of 2021, but have stagnated since.

"This uncertain and unequal process of recovery is a matter of serious concern," said the ILO.

From a regional perspective, Europe and Central Asia came closer to the pre-crisis benchmark with a gap of 2.5 per cent, followed by Asia and the Pacific at 4.6 per cent. In contrast, Africa, the Americas and Arab States saw larger gaps of 5.6, 5.4 and 6.5 per cent, respectively.

The impact of the COVID-19 pandemic resulted in unprecedented and volatile developments in global labour productivity levels, said the ILO.

The world's output per hour worked surged by 4.9 per cent in 2020, more than double the long-term average annual rate of 2.4 per cent registered between 2005 and 2019.

However, in 2021, there has been a sharp reversal in global labour productivity growth with significant differences between countries.

Global output per hour worked is projected to decline by 0.1 per cent, with the strongest contractions in low-income (-1.9 per cent) and lower-middle-income countries (-1.1 per cent). High-income countries are expected to maintain slightly positive productivity growth.

According to the ILO, these trends point to a further widening in the "productivity gap" between the world's low- and high-income economies.

In 2020, in real terms, the average worker in a high-income country produced 17.5 times more output per hour than the average worker in a low-income country. This is projected to widen to 18.0 in 2021, the largest gap since 2005.

The ILO said analysis from 26 countries shows that smaller firms have seen substantially larger declines in hours worked than larger firms.

Establishments with 1-4 employees saw a decline in working hours of 12.1 per cent and those with 5-49 employees registered a decline of 11.5 per cent. Establishments with 50 or more employees experienced a decline of only 8.7 per cent.

"These developments in working hours and enterprise structure have translated into an uneven and fragile recovery in employment, unemployment and inactivity," said the ILO report.

It said the latest global estimates and country-level data confirm that, overall, the crisis has resulted in a significant employment deficit, which persists in most countries. While unemployment has been gradually declining, inactivity has often stayed high, leaving the overall employment-to-population ratio well below the pre-pandemic benchmark.

STIMULUS, VACCINATION & JOB RECOVERY

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

"The capacity of high-income countries to deploy levels of financial resources unavailable in other countries has generated a major "fiscal stimulus gap" which has in turn shaped the uneven trajectory of the recovery process."

The latest IMF estimates show that global fiscal stimulus put in place to respond to the COVID-19 crisis amounted to US$16.9 trillion, which has been heavily concentrated in advanced economies (85.9 per cent of global spending).

Emerging and developing economies accounted for just 13.8 and 0.4 per cent of the global stimulus, respectively.

Though the pandemic continues to disrupt labour markets, the majority of emerging and developing economies are unable to provide higher levels of fiscal support in 2021 and beyond, adversely impacting their recovery process.

As of June 2021, half of low-income countries were already in debt distress or at high risk, said the ILO.

At the same time, concerns about inflationary pressures related to stimulus and significant global supply chain bottlenecks have also emerged, it added.

While care is needed in designing and adapting stimulus packages to improve their impact and efficiency in rapidly evolving circumstances, premature withdrawal of fiscal support would risk exacerbating labour market disruptions or slowing down job recovery. The evidence confirms the importance of continued strong stimulus, said the ILO.

According to ILO estimates, on average, an increase in fiscal stimulus of 1 per cent of annual GDP is associated with a 0.3 percentage point increase in working hours relative to the last quarter of 2019 in annualized terms. This is a larger effect than previously estimated, it added.

VACCINATION A CRUCIAL FACTOR IN JOB RECOVERY

According to the ILO report, along with fiscal stimulus, vaccination has been a crucial factor in determining labour market recovery.

"Vaccinations are key to opening up the economy and lowering the risk associated with everyday consumption and production activities. The enormous differences between countries in the roll-out of vaccination is contributing directly to the highly uneven process of job recovery around the world," it said.

The ILO said that analysis of data from 28 countries over the first two quarters of 2021 shows that vaccination is positively correlated with the recovery in working hours.

The estimates imply that, globally, an additional 10 percentage points in the share of the population becoming fully vaccinated is associated with a recovery in working hours of 1.9 per cent (or the equivalent of 52 million full-time jobs).

This means that during the second quarter of 2021, on average, for every 14 persons fully vaccinated, a full-time equivalent job was added to the global labour market.

This suggests that vaccination already substantially boosted the recovery and generated strong divergence across countries as early as the second quarter of 2021, said the ILO.

"Estimates show that, if no vaccinations had taken place, global working-hour losses would have reached 6.0 per cent, 1.2 percentage points higher than the losses actually recorded in that quarter."

This difference is equivalent to an additional loss of 37 million full-time jobs. As expected, this estimated positive effect was largest in high-income countries (3.4 percentage points) reflecting their relatively high vaccination rates, while the effect is almost zero in low-income countries and negligible in the lower-middle-income countries (0.3 percentage points).

According to the ILO report, a two-speed recovery is projected for 2021 and beyond. The optimism that prevailed at the beginning of 2021 has faded under the effects of new waves of the pandemic, the appearance of new COVID variants and the slow and uneven roll-out of vaccinations.

"Wide access to vaccines, combined with relatively strong fiscal stimulus, will likely enable high-income countries to record a faster recovery in working hours than the rest of the world. By contrast, low-income countries and lower-middle-income countries, which lack both, are likely to experience recurrent disruptions to the labour market and other damaging risks."

Globally, worsening prospects for the second half of this year have resulted in a significant downward revision to the overall projection for working-hour recovery in 2021. Compared to its level in the fourth quarter of 2019, the revised projection is for a deficit of 125 million full-time equivalent jobs in 2021, compared to an earlier projection of 100 million, said the ILO.

Even in the absence of a further wave of the pandemic, overall, the fourth quarter of 2021 is expected to see only a modest recovery in working hours.

Upper-middle-income and high-income countries will recover fastest and furthest, but working hours will remain substantially below their level of the fourth quarter of 2019 in low- and lower-middle-income countries.

"Addressing this working-hour deficit will require a surge in vaccinations, especially in developing countries."

The ILO said a more equitable distribution of vaccines in the fourth quarter of 2021 would enable low-income and lower-middle-income countries to sizeably reduce the gap in working hours with respect to upper-middle and high- income countries.

The ILO said that such potential impacts can be demonstrated by comparing the "baseline" scenario (that is, one in which vaccination roll-out follows the 2021 average pace recorded thus far and which assumes that there are no further downside economic risks, including in global supply chains and energy prices) and the "fair vaccination" scenario (in which vaccines are distributed equitably across countries - proportional to population).

This estimation shows that, in just one quarter, low-income countries would see their hours worked increase by 2.0 percentage points (relative to the pre-crisis benchmark) if they had equitable access to vaccines, effectively closing the gap in working hours with upper-middle-income and high-income countries. In lower-middle-income countries, the effect is estimated to be somewhat lower, equal to 1.2 percentage points.

Nonetheless, this would allow these countries to reduce the current gap by roughly 40 per cent, said the ILO.

According to the ILO report, this evidence suggests that taking steps to address inequality in vaccinations could bring rapid and substantial benefits to the global labour market, resulting in a fairer and more inclusive recovery.

LOOKING AHEAD

The ILO said that notwithstanding the resumption of global economic growth, overall recovery in hours worked is now flat-lining significantly below pre-pandemic levels, and with very significant differences between countries according to income level.

The evidence is of a "great divergence" in the recovery paths of higher- and of lower-income countries caused above all by the major differences in the roll-out of vaccinations and that of fiscal stimulus.

Concerns over this trend which is leaving many behind in the recovery are compounded by the additional downside risks in respect of supply chain bottlenecks and disruption, energy, inflation and debt distress.

The ILO said corrective action needs to start with radically strengthened international action and cooperation to help lower-income countries to increase their rates of vaccination to levels comparable to those in the higher-income countries.

In addition to saving lives this would enable a more equitable and inclusive process of economic and labour market recovery and add to resilience by offering greater protection to all countries from risks of resurgent virus variants.

Similarly, international cooperation is the key to providing necessary financing of the recovery process. The limited initiatives undertaken to date, while welcome, are clearly insufficient, said the ILO.

In this regard, the recent, and unprecedented, allocation by the IMF of US$650 billion in special drawing rights offers a major opportunity.

"Re-channeling these funds to the countries that need them, and to the purposes that advance human-centred recovery, stands as an immediate priority for the international community," the ILO said.

The ILO said the constraints on resources, and the multiple demands on them, against a background of increased debt and inflationary pressures, make it imperative to direct them to uses which maximize their positive impact on jobs and incomes and benefit particularly the hardest-hit by the crisis and the most vulnerable.

It said resisting the pressure for premature fiscal consolidation must be matched by national policies which ensure coherent strategies that provide for efficient investment in inclusive, sustainable and resilient recovery.