Editorial: From recovery to resilience after COVID-19
What took more than a decade to achieve has unravelled within a matter of months. In early 2020 the employment rate in the OECD reached a record-high of 68.9%, 2.6 percentage points above the previous record just before the global financial and economic crisis of 2008. Then the pandemic struck. Within months, COVID-19 spread around the globe triggering the worst public health emergency in a century. It has sparked an economic crisis not seen since the Great Depression of the 1930s. More than 10 million people have been infected with the virus, more than half a million people have died and trillions of dollars have been pumped into the world economy to protect lives and livelihoods. In the face of this challenge, a four Rs strategy, which progresses from response and rehabilitation to reciprocity and resilience, is needed to re-build a better, more robust, and inclusive labour market.
The immediate response to the pandemic has been unprecedented in scale and scope. As countries move out of lockdown, rehabilitation will be critical to protect many jobs. Reciprocity, with everyone contributing to rehabilitation with a sense of responsibility, will also be key to the recovery. Last but not least, the COVID-19 crisis has exposed gaps in the labour market that must be closed to boost resilience. With the low-paid, the young, women, the self-employed and temporary workers among the hardest hit by the crisis, the burden of the pandemic has been shouldered disproportionately by the most vulnerable.
Countries around the world have taken major steps to deal quickly with the crisis. On the public health side, the primary objective has been to “flatten the curve” of the virus, contain the otherwise overwhelming pressure on hospitals and ultimately save millions of lives. Intervention was swift. Many countries adopted drastic containment measures, which resulted in an unprecedented – at least in peacetime – shutdown of most non-essential activities, from kindergartens, to schools, factories and most shops and recreational activities.
The combination of fear of infection, public guidelines and mandatory lockdowns and great uncertainty, produced a sharp contraction in economic activity with a deep and widespread shock to the labour market. An unprecedented number of workers (39% on average) shifted to telework, pushing the boundaries of the potential for this alternative way of work organisation. Despite this, in all countries the number of those effectively working collapsed much more than during any recent economic and financial crisis, as companies in non-essential sectors laid-off workers, froze hiring and put most of their workforce on hold through subsidised job retention schemes. By May 2020, companies had claimed job-retention subsidies for more than 30% of their employees in countries such as Germany or the United Kingdom and up to 50% in countries such as France and New Zealand. In the meantime, the OECD-wide unemployment rate rose from 5.3% in January to 8.4% in May.
While the virus respects no borders or socio-economic groups, its spread has disproportionally affected the most vulnerable, either directly because of greater difficulty in protecting themselves, or indirectly via the impact of the lockdown on their jobs. Low-income workers are paying the highest price. As shown in this OECD Employment Outlook, during the lockdown top-earning workers were on average 50% more likely to work from home than those in the bottom quartile; the latter were more often employed in essential services during the lockdowns and at risk of exposing themselves to the virus while working. At the same time, low-income workers were twice as likely to have to stop working completely as their higher-income peers were.
Workers in non-standard jobs – i.e. self-employed workers and those on temporary or part-time contracts – have been particularly exposed to job and income losses. In contrast to the global financial crisis, women have also been hit harder than men, as they are over-represented in the most affected sectors and disproportionally hold precarious jobs, while more is being asked from them in the home. And the “Class of Corona”, this year’s graduates, are leaving schools and universities with poor chances of finding employment or work experience this summer or in the autumn.
RESPONSE: The “emergency” response to the pandemic has been unprecedented in scale and scope. As the health and economic shock was unprecedented in terms of speed and virulence, so was the policy response, with several trillion dollars quickly committed globally to sustain individuals, households, and companies. Beyond providing direct and indirect financial support to companies, the vast majority of OECD countries have strengthened and/or extended income support to workers unable to work or who are jobless. Many extended or introduced job retention schemes at firms suffering from a temporary reduction in business activity, thereby avoiding severing labour contracts, which would have resulted in the destruction of valuable competences and viable investment. Many countries also introduced or strengthened sick pay, including for quarantined workers, and took measures to address unforeseen care needs for working parents.
Despite the massive measures taken around the globe, uncertainty about future labour market developments is large, as the risk of new outbreaks is high. Much of what will happen depends on the evolution of the pandemic. The results of an epidemiological model the OECD developed during the crisis suggests that the strict confinement measures introduced in many countries were successful in containing the number of fatalities. Moreover, model simulations indicate that a second wave can be avoided even in the absence of a vaccine. This requires putting in place a package of comprehensive public health interventions, ranging from massive upscaling of testing, tracking and tracing (TTT), to enhancing personal hygiene measures, to ensuring wide use of masks and the continuous enforcement of some physical-distancing policies such as banning large gatherings and encouraging people to work from home.
Given the uncertainty about the evolution of the pandemic, the latest OECD Economic Outlook presents two possible, equally probable, scenarios: one where the virus outbreak continues to recede and remains under control, and one where a second wave of rapid contagion erupts later in 2020. Even under the single-hit scenario, world economic output is forecast to plummet by 6% this year, before climbing back by 5.2% in 2021. The outlook would be much worse with a double-hit scenario. In the most optimistic scenario, the OECD-wide unemployment rate is forecast to be 9.4% in the fourth quarter of 2020, exceeding all the peaks since the Great Depression, while average employment is projected to fall by 4.1% to 5% with respect to 2019, depending on whether a second outbreak materialises.
Responding swiftly to the huge challenges imposed by the sudden lockdown required a Herculean effort on the side of governments across OECD countries and beyond. As the economy re-opens, policy must lead the labour market and society along the road to rehabilitation. But, adapting this package of measures to the new situation of a gradual and managed re-opening is not any easier, and will require reciprocity and responsibility from all stakeholders.
REHABILITATION: In the short-term continued support for some sectors remains vital to protect jobs and wellbeing, but labour market mechanisms must re-start operating. Accompanying the labour market during the gradual scaling back of confinement measures requires a two-pronged approach. First, labour market policy must support the effort of preventing a second severe pandemic wave and preparing for that in case it materialises. Teleworking remains, for many, an effective way to work while limiting risks of contracting the virus. Evidence shown in this Employment Outlook suggests that, on average, about one third of jobs can be done from home under normal conditions. Enhancing the use of teleworking requires not only facilitating employer-employee arrangements but also investing to make sure that workers have the instruments to work from home under good conditions (computer or tablet, broadband connection, room to work undisturbed etc…). It will also require planning work organisation, in particular in the case of a second pandemic wave, and training the workforce to make the most of teleworking.
Almost two-thirds of jobs cannot, or can hardly, be performed from home. Some of them have a limited risk of infection as they involve no or infrequent physical interactions (e.g. plumbers, truck drivers, or archivists). However, almost one-half of all jobs require frequent interactions and, in the absence of precautions, carry some risk for workers being infected at work (as exemplified by the large number of hot spots that have developed in meatpacking plants). Therefore, developing and adapting rigorous occupational safety and health standards remains a policy priority. Moreover, continuing to guarantee extensive paid sick leave will remain crucial, so that potentially infected workers do not spread the virus at work.
Second, as the re-opening of the economy unfolds and activity restarts, labour market and social policy should be adapted to reflect the varying conditions of workers, households, and companies. During the lockdown, a broad one-size-fits-all support strategy was justified, as most activities were simply prevented from operating and companies and jobs would not have survived without immediate support. Now, policy makers are facing the difficult task of moving the economy from emergency action, with massive, generalised support, to recovery, where support needs to be differentiated according to the conditions of firms, sectors, and workers.
Firms and workers in sectors that are still prevented from operating – such as parts of the entertainment industry – should continue to be supported, at least temporarily, to increase their chance of resuming work. However, where activities can resume the market mechanism should re-start operating, allowing for workers and resources to move from unviable to promising activities.
Measures should be targeted better to ensure that those in need really get help, while fostering the incentives to go back to work for those who can. This is necessary to avoid the scars of prolonged joblessness and inactivity, on the one hand, and to ensure the sustainability of policy interventions, on the other hand. A clear example of the need to adapt the policy intervention is provided by job-retention schemes. For sectors where activity have resumed, firms should be required to carry part of the cost of the job retention scheme. To avoid reinforcing financial difficulties of firms, employers’ participation can take the form of a delayed-payment or zero-interest loan. In addition, stricter limits on the duration of subsidies and incentives to look for work, combine temporary secondary jobs and short-term subsidies, and take up training are among the policy levers that policy-makers and social partners should consider in coming months.
As prospects of quickly finding new work will remain poor for many, some countries should extend unemployment benefit durations to prevent jobseekers from sliding too quickly into much less generous minimum-income benefits. This will be even more necessary in the case of a second wave of infections and renewed restrictions to economic activity. Emergency support for the self-employed should also be re-assessed, in order to improve targeting, restore incentives and ensure fairness. More generally, the duration, targeting and generosity of all the income support programmes put in place in the early months of the crisis should be re-examined to ensure that they are sustainable, their effects on work incentives are minimised, and they guarantee that support goes to the most needy. Public and private employment services will also face the daunting challenge of serving a high number of jobseekers with differing conditions. Their capacity will have to be scaled up to avoid permanently neglecting functions that may have been of secondary importance during the emergency phase of the crisis (e.g. career advice, counselling).
Implementation and delivery of this complex package will be crucial, however. During the crisis, many people have waited for too long to receive the help they need and were entitled to. New programmes found themselves entangled in a mass of administrative yarn and took too long to reach beneficiaries. Newspapers have been filled with examples of companies going bankrupt before receiving promised subsidies, displaced workers applying for unemployment benefits but not having received them after several weeks, and even children not receiving lunches replacing those of locked down school canteens.
RECIPROCITY AND RESPONSIBILITY: In both the short and the long-term, all parts of society need to contribute to this rehabilitation with sense of responsibility, in particular those who have received, or still receive, public support.
All actors in the economy should play their role in rebuilding a better labour market. Reciprocity is needed between public support for struggling firms and industries and private sector support for efforts to help the unemployed return to work, boost employees’ skills and ensure no one is left behind in a recovery. This particularly applies to those firms that receive or have received job retention and other subsidies, but all firms must strive for the reconstruction of a dynamic labour market. Hiring and re-hiring, investment in new technologies and in training for the workforce, and/or continued participation in apprenticeship programmes should take a central role in corporate decisions. Time-limited hiring subsidies have proven quite effective at supporting job creation, notably in bad times, while minimising the administrative costs of monitoring eligibility requirements on take-up (e.g. by allowing recapturing credits when job creation goals are not met or considering refundable hiring credits, as done by certain US states during the global financial crisis).
A similar argument applies to individuals receiving income support. For example, a priority will be restoring the “mutual obligations” approach, in which governments commit to providing jobseekers with benefits and effective employment services and, in turn, beneficiaries have to take active steps to search for work or improve their employability. This is key to mobilise jobseekers to find viable jobs.
RESILIENCE: The COVID-19 crisis has shown more than ever the need to strengthen resilience and inclusivity in the labour market. In the medium term, countries should address the structural problems that the crisis has put under the spotlight. As stressed in the OECD Jobs Strategy, effective economic resilience requires counter-cyclical macroeconomic policies, adequate income support for all workers, rapid expansion of job-retention schemes during crisis, and effective social dialogue.
The COVID-19 crisis has laid bare pre-existing gaps in social protection provisions. In many countries, the insurance function of social protection works well for employees with stable work histories. But, as shown in this Employment Outlook, even if entitlement rules are usually the same for all dependent employees, conditions on minimum employment duration or earnings before the unemployment spell are often harder to meet for those who lose a part-time job or have unstable or short employment histories. The self-employed and other non-standard workers are often poorly protected or not protected at all. At the same time, the assistance function of social protection systems – providing last-resort minimum-income benefits for those with little or no other resources – has been put to a severe test. The emergency has prompted decisive actions to reduce these gaps in social protection. The challenge now is to build on these initiatives, and transform temporary fixes into structural changes.
Workers in non-standard forms of employment need to be able to build up rights to the types of out-of-work support that are already available to standard employees. While including self-employed in earnings-related social-protection schemes can be fraught with moral hazard and other logistical and administrative concerns, several countries have already been successful in establishing well-designed policies that work for their circumstances. For instance, a number of OECD countries do include the self-employed in their unemployment and sickness insurance schemes. A more equitable treatment of different forms of employment can help minimise future needs for makeshift programmes – that are necessarily less targeted and cost-effective and can be prone to leakage.
Even with well-designed social insurance schemes in place, providing a minimum level of assistance to those in need is a basic function of social protection systems. Yet, even in normal times, the accessibility, the reactivity, and the generosity of these programmes differ markedly across countries. In many cases, complex criteria and claim procedures result in low take-up and receipt rates, long waiting periods, and sometimes inadequate levels of support. One-off or temporary lump-sum transfers, as introduced by many countries during the COVID-19 crisis, have played a role in providing fast support to those in needs. But beyond the short-term, as fiscal pressures mount, sustainable and effectively targeted programmes will be needed. Making minimum-income protection more responsive, through timely reassessment of entitlements in the face of rapidly changing circumstances remains an urgent policy priority.
Strengthening labour market resilience also requires stronger institutional capacity to scale up key measures quickly, while maintaining service quality. This implies that when a crisis hit, the policy infrastructure should already be in place and can be scaled up quickly. Evidence suggests that implementation and delivery failures during the COVID-19 crisis were more common where emergency solutions had to be created from scratch.
Reconstructing a better and more resilient labour market is an investment in the future and future generations. We cannot afford losing the Corona Class generation. In the aftermath of the global financial crisis, governments acted far too late to address the labour market difficulties of youth, which left them with long-lasting scars that were still visible before the COVID-19 outbreak. There is no time to waste to put in place a comprehensive policy package ensuring that no young worker is left behind. Everybody should have a route to follow (such as, e.g. the EU Youth Guarantee). Every actor must, again, play its role with responsibility and reciprocity: companies, for example, should be encouraged to provide opportunities for work experiences by hiring new graduates or offering apprenticeships, internships or work-related training, while governments should accompany them with specific financial incentives.
A comprehensive recovery plan should include, the expansion of cost-effective active labour market measures – such as counselling, job-search assistance, entrepreneurship programmes. Extending support for vocational education and training (VET) would also be crucial. As shown in this Employment Outlook, the transition from school to work of non-tertiary VET graduates remains much easier than that of their general-education peers. Yet, it is important to make sure that these programmes remain responsive to changing labour market needs.
Social dialogue and collective bargaining have a key role to play in enhancing the resilience of the labour market. When social partners work co-operatively, this flexibility and granularity could allow adapting and deploying more rapidly the required responses through tailor-made agreements and work re-organisations that are adjusted to meet each specific situation. In many countries, for example, collective bargaining and social dialogue have recently proved instrumental in ensuring safer workplaces. The guidelines and codes of good conduct established by social partners and the agreements signed between employers and trade unions in this area in various countries (e.g. Denmark, France, Italy and Spain) are excellent examples of how social dialogue and collective bargaining can be mobilised to complement public action and find flexible and tailored solutions for both companies and workers.
Countries should harness the lessons of this crisis and plan for a thorough assessment of labour market resilience, drawing on the OECD Jobs Strategy framework. This complex exercise will have to involve all stakeholders and lead to the identification of country-specific policy packages to enhance resilience within a more inclusive labour market.
It is not the time to rebuild the old. It is time to build better.
Stefano Scarpetta
Director for Employment, Labour and Social Affairs
OECD