Alongside COVID-19’s toll on human lives, the pandemic is also imposing a huge challenge on individuals as businesses owners and as workers. As countries declare lockdowns and face shortages of key medical and health care supplies, some firms are transforming their business model or adapting production to meet emerging demand related to the pandemic, while many others are downsizing or closing down, temporarily or permanently. This poses an unprecedented challenge to the private sector with negative consequences for labor markets, putting millions of people at risk. As firms close or reduce their activities, whether because of government restrictions, lack of demand, or lack of critical inputs or raw materials, a growing number of workers employed in the formal private sector have been laid off.
Among the private sector workforce, a differentiation must be made between permanent and temporary workers. While both are suffering from the crisis, permanent workers generally enjoy better access to social protection, albeit at different levels depending on the labor regulations and social security systems in place in different countries. In some countries permanent workers can keep their jobs with social security paying for a portion of their salary or may have the possibility to file for unemployment insurance and healthcare. And many governments, such as Jamaica and Kazakhstan, have already announced steps to offer some of these benefits. While supporting permanent workers in this difficult time is certainly of extreme importance, there is a portion of the workforce normally employed in the formal private sector with temporary or seasonal contracts that won’t be covered by any of these measures.
The World Bank Enterprise Surveys show that temporary or seasonal workers – those with contracts of less than one year – account for nearly 7 percent of the private sector workforce globally, reaching more than 10 percent of the workforce in sectors that are highly affected by the crisis such as the hospitality industry. Moreover, as these are sectors with high shares of female employment, the crisis may have a disproportionately high negative effect on women and their employment opportunities. Globally more than 60 percent of temporary workers in the average hotel or restaurant are women. While economic downturns generally have a more severe effect on men, a recent study suggests that this time the situation may be different because of the sectors that are affected and closures of educational facilities. Mothers, still bearing the bulk of child care duties in most households, are likely to be affected even more, with additional potentially negative spillovers for their employment situation. Single mothers are in a particularly vulnerable position. Governments should consider extending unemployment benefits even to those that voluntarily chose to remain at home for the duration of school closures to take care of their children.
As the crisis continues, countries are implementing policies in support of workers facing difficulties or preparing to do so. Thailand has already approved cash transfers and soft loans for over 3 million workers outside the social security system. Italy, where nearly 1 in 10 workers in the average business is employed temporarily, has allocated 2.5 billion euros to support businesses that have short-term workers. This package would help over 1.5 million workers in the Italian private sector. As the coronavirus spreads beyond China, Europe, the United States, many more vulnerable people may be at risk. In countries like Vietnam, for instance, where temporary workers make up 15 percent of the workforce in the average private sector business, the negative effects could be harsh. In these countries it would be prudent to follow similar policies to establish a safety net for those in need.
While workers are left without a job due to lack of demand in many sectors, the demand for temporary employment has grown in the midst of the crisis in other sectors, such as food and retail. A parallel strategy is warranted: (1) assisting vulnerable workers in affected sectors by extending safety nets, and (2) temporarily easing regulations for hiring temporary workers in sectors where they are needed. Sixty-six out of 191 economies studied in the Doing Business report prohibit having a fixed-term contract for permanent tasks. With consumer demand plummeting, it may be too costly for businesses to hire workers on permanent arrangements in an uncertain environment. For the duration of the crisis, temporary measures may be called for, aimed at relaxing the restrictions on temporary work which may benefit both (1) workers that find themselves without a job, and (2) businesses with the ability to adapt to market conditions. Germany already relaxed its short-time work scheme known as Kurzarbeit to serve as a buffer during an economic downturn. Similar measures were taken by Austria and Spain. All three programs have two commonalities: (1) extension of safety nets to workers, and (2) its temporary nature, to be phased out quickly upon recovery. In addition, 76 countries have some restrictions on working at night, on weekends and holidays, or overtime, which create additional burdens in times where circumstances require flexibility of work hours. Temporary relaxation of these restrictions may also be considered, to provide the necessary resources to firms that may need to change their processes to allow social distancing or to change and/or increase their production.
To summarize, our recommendation to help businesses owners and workers during the crisis is twofold: as a temporary measure, relax restrictions on temporary employment to give more flexibility to firms to hire as needed, and enhance or reinforce safety nets for temporary workers in sectors experiencing a sharp decline in consumer demand, to minimize instability and exposure to the effects of the COVID 19 pandemic. More creative measures may be required if the crisis intensifies.