## Recession and Recovery in Labor Markets: Patterns, Policies, and Responses to the COVID-19 shock

## Source details

**Canonical URL:** [Recession and Recovery in Labor Markets: Patterns, Policies, and Responses to the COVID-19 shock](https://www.imf.org/-/media/files/oap/oap-home/2021/april-2021-weo-chapter-3-oap-may13-2021.pdf)

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### COVID-19 labor market deterioration: overall patterns
- Economic disruptions produced widespread worker dislocations globally.
- Average unemployment rates are up and labor force participation down compared with their pre-pandemic averages in both advanced and emerging market and developing economies.
- Labor Market Conditions in Emerging Market and Developing Economies (Percentage points) — the source highlights deteriorations but does not supply additional numeric breakdowns in the excerpts.

### Unequal impacts across groups
- Low-skilled workers and youth have been particularly hard hit across the world.
- Signs that women in emerging market and developing economies were affected more.

### Sectoral patterns and automation vulnerability
- Services more vulnerable to automation were hurt more, reinforcing a trend toward less vulnerable and higher-skill services.
- Employment has been shifting away from sectors that are more vulnerable to automation, and the share of employed workers with lower skills has fallen.
- The shift results from net hiring of workers from unemployment and nonparticipation.
- During recessions, sectors that are more vulnerable to automation exhibit large outflows into unemployment.

### Historical patterns: youth, lower-skilled, and gender dynamics
- The probability of finding a job is lower in recessions and recoveries than in expansions, while job separations rise.
- Youth tend to be disadvantaged in finding a job and more likely to lose one than prime-age workers in a downturn.
- Women have seen smaller drops in job finding and rises in separations than men during a recession.
- Lower-skilled workers have a higher likelihood of finding a job than higher-skilled workers, but also a higher likelihood of losing it in a recession.

### Occupational switching and earnings penalties
- “On the job” occupational switching incidence is smaller than after a one-year unemployment spell.
- The earnings penalty associated with an unemployment spell is large.
- Lower-skilled workers are likely facing a "triple whammy": larger employment losses, higher separation risk, and larger earnings penalties when switching occupations after unemployment.

### Policy frameworks: retention versus reallocation
- The COVID-19 shock is characterized as a hybrid shock: largely transitory but with some permanent component and an asymmetric impact on occupations.
- Policy package recommendation:
  - Retention policies under lockdown to preserve matches in the near term.
  - Reallocation policies when lockdowns lift to address permanent effects.
- The analysis illustrates scenarios comparing "No policy scenario" versus a "Retention and reallocation package" for unemployment dynamics over subsequent quarters after the shock.

### Policy implications and recommendations
- Countries with fiscal space should maintain support for job retention while the transitory shock from the pandemic is ongoing, to avoid socially costly unemployment spells and to dampen effects on more disadvantaged worker groups.
- As recovery gets under way, more vigorous deployment of worker reallocation support can hasten labor market adjustment.
- The pivot from retention to reallocation policies could be linked to the duration and intensity of the pandemic; uncertainties about the pandemic make phaseout timing complicated in practice.
- Policies could be designed to target more affected worker groups; for example, increasing wage or hiring subsidies for youth or lower-skilled workers.

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_Source: https://www.imf.org/-/media/files/oap/oap-home/2021/april-2021-weo-chapter-3-oap-may13-2021.pdf_