Labor market recovery under threat again

by dr. Gyan Pathak

After significant gains in the last quarter of 2021, the number of hours worked worldwide fell in the first quarter of 2022, to 3.8 percent below the pre-crisis benchmark in the fourth quarter of 2019. This corresponds to a deficit of 112 million full-time jobs, which is a significant reduction from the figures published by the ILO in January 2022.

The International Labor Organization (ILO)’s most recent Monitor on the world of work finds that multiple global crises are leading to a marked deterioration in the recovery of the global labor market, with increasing inequality within and between countries.

The positive trend in hours worked has stalled and is in danger of being reversed. Recent containment measures in China are responsible for most of the global decline. These estimates for the first quarter of 2022 show a marked deterioration compared to the ILO’s previous January 2022 forecast (2.4 percent below pre-crisis levels, corresponding to 70 million full-time jobs).

The conflict in Ukraine has not only had a regional impact, but has also hit the global economy by raising inflation, especially food and energy prices, and disrupting global supply chains. In addition, increased financial turbulence and monetary policy tightening are likely to have a broader impact on labor markets around the world in the coming months. There is a growing but uncertain risk of a further deterioration in the number of hours worked in 2022.

The gender gap in hours worked remains large, despite positive developments in high-income countries. The recovery is not closing the gender gap in hours worked in the labor market, which was already significant before and widened during the COVID-19 crisis. While some progress has been made in narrowing the gap in high-income countries, worldwide women now spend 18.9 hours a week in a job, or 57 percent of the average number of hours worked by men (33.4 hours). .

Large differences in employment and labor income persist. By the end of 2021, employment in most high-income countries had returned to pre-crisis levels or even exceeded them, while deficits persisted in most middle-income economies. Overall, global labor income surpassed pre-crisis levels by 0.9 percent in 2021, thanks to high-income countries and China. However, this general trend hides significant differences. In 2021, three in five workers lived in countries where labor incomes were not yet at pre-crisis levels.

Informal female employees have been hit harder than their male colleagues. The number of informal jobs fell by 20 percent at the peak of the crisis in the second quarter of 2020, twice the impact recorded for employees with formal employment. In informal employment, women were hit harder than men. In the second quarter of 2020, the number of women in informal employment decreased by 24 percent from the pre-crisis situation, compared to an 18 percent decrease among men. The sectors in which women tend to be active informally and their disproportionate care responsibilities were responsible for this very uneven impact. By the last quarter of 2021, the recovery in informal employment had caught up with formal employment, increasing the share of informal employment in total employment. In general, the recovery of employment for women has been slower than for men, which has contributed to a widening employment gap between men and women worldwide.

The surge in job vacancies in advanced economies in late 2021 and early 2022 has led to a tightening of labor markets with a growing number of jobs available relative to job seekers, with the latter remaining roughly stable. In 39 countries with available data (mainly advanced countries), labor market tightness increased by an average of 32 percent, with significant differences between countries. Overall, there is no strong evidence that labor markets are generally overheated, as the pool of unemployed and underutilized labor is still significant in most of the countries analysed. In addition, emerging economies continue to face significant labor market tightness.

Global inflation, mainly caused by increases in food and energy prices and supply disruptions, adds further risks to the recovery and an erosion of real incomes for workers and their families. Without commensurate wage increases, aggregate demand could fall significantly, jeopardizing economic growth and employment. Based on countries with available data, real wages grew 1.6 percent in the median country in 2020-21, which is 0.7 percentage points lower than the median growth in 2019. Despite tighter labor markets, the overall risk of a wage price rise spiral remains low at the moment.

The proliferation of crises and rising inequalities between and within countries is hampering efforts more than ever to make labor markets more inclusive and resilient, jeopardizing recent recovery gains. In this complex and uncertain situation, policymakers must carefully manage both the lingering effects of the COVID-19 crisis and the actual and potential shocks of the conflict in Ukraine, including the impact of inflation on jobs and real wages, the report said.

To navigate the many crises towards a people-centered recovery, the report recommends paying particular attention to: providing timely and effective support to maintain the purchasing power of labor income and the general standard of living of workers and their families; Careful adjustment of macroeconomic policy stance to address inflation and debt sustainability, while recognizing the need to facilitate a job-rich and inclusive recovery; Ensure that hard-hit groups and sectors are protected through social protection for workers and support for businesses, especially SMEs and those operating in the informal economy; in the longer term, support well-designed sectoral policies to promote decent job creation, coupled with strong labor market institutions and social dialogue; and monitoring and assessment of the impacts of multiple crises on the world of work, with a particular focus on addressing inequalities, livelihoods and sustainability. (IPA service)

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