## Working Out the Differences: Labor Policies for a Fairer Recovery

_IMF Blog, March 31, 2021_

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## Bibliographic details
- Authors: John Bluedorn
- Published: March 31, 2021

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### Pandemic labor-market impact: unequal and persistent
- The COVID-19 pandemic’s destruction of jobs was "sure and swift."
- Youth and lower-skilled workers took some of the hardest hits on average.
- Women, especially in emerging market and developing economies, also suffered.
- Many affected workers face earnings losses and difficult searches for job opportunities.
- Structural changes may mean that job options in some sectors and occupations permanently shrink and others grow.

### Sectoral patterns and automation
- Jobs that are less skill-intensive and more vulnerable to automation tended to suffer more during the pandemic recession.
- The pandemic accelerated preexisting employment trends, reinforcing a shift away from employment in sectors and occupations more vulnerable to automation.
- Sectors that have shrunk the most from the crisis include:
  - hotels and restaurants (accommodation and food)
  - wholesale and retail stores (trade)
- Sectors that saw employment growth last year include:
  - information technology & communication
  - finance & insurance
- More impacted sectors often have fewer jobs amenable to remote work and tend to employ higher shares of youth, women, and the lower-skilled, contributing to unequal effects across worker groups.

### Scarring, occupational switching, and earnings penalties
- Evidence from past recessions suggests the pandemic is likely to inflict sizable costs on the unemployed, particularly lower‑skilled workers.
- After unemployment spells, workers often have to switch occupations to find a new job, which tends to come with a pay cut.
- On average, unemployed workers finding work in a new occupation experience a large average earnings penalty of about 15 percent compared to their previous earnings.
- Lower-skilled workers face a "triple whammy":
  - more likely to be employed in sectors more negatively impacted by the pandemic;
  - more likely to become unemployed in downturns;
  - more likely, if reemployed, to need to switch occupations and suffer an earnings fall.

### Policy scenarios and quantified effects
- No-policy scenario:
  - An asymmetric pandemic shock leads to an enormous and rapid rise in unemployment and a grinding adjustment as conditions gradually improve.
- Policy-package scenario (job retention + worker reallocation support):
  - Job retention measures (examples: short-term work schemes like Germany’s Kurzarbeit; wage subsidies like the new US Paycheck Protection Program) help preserve jobs during the initial high-distancing shock.
  - Worker reallocation policies (examples: incentives to start new businesses and hire workers; assistance to help match workers to new jobs; (re)training programs) ease adjustment to more permanent structural employment changes as the pandemic subsides.
  - Combined policy support lowers unemployment about 4 ½ percentage points below what it would have been without such support.
  - The policy mix disproportionately benefits lower-skilled workers and can hasten recovery if some measures are targeted toward more impacted populations (such as youth).

### Policy guidance and timing
- Policymakers need to consider the path of the pandemic (including cases and deaths, the extent of distancing measures, and rollout of vaccines) when deciding whether to shift from job-preservation measures to policies that expedite worker movement to growing sectors and occupations.
- The right balance of measures can reduce unequal impacts across workers and encourage a speedier labor market recovery.

*Based on Chapter 3 of the World Economic Outlook, “Recessions and Recoveries in Labor Markets: Patterns, Policies, and Responses to the COVID-19 Shock,” by John Bluedorn (lead), Francesca Caselli, Wenjie Chen, Niels-Jakob Hansen, Jorge Mondragon, Ippei Shibata, and Marina M. Tavares, with support from Youyou Huang, Christopher Johns, and Cynthia Nyakeri.*

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## References

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- [World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2021/03/23/world-economic-outlook-april-2021)

_Source: https://www.imf.org/en/blogs/articles/2021/03/31/blog-working-out-the-differences-labor-policies-for-a-fairer-recovery_