How has the future of work been changed by the COVID-19 pandemic?
Over the past few months, labor market prospects have worsened rapidly due to the impact of the virus on labor supply and labor demand. The COVID-19 outbreak has slowed the demand for goods and services, reduced the supply of inputs, tightened liquidity, and heightened uncertainty. Many people have become vulnerable to reduced incomes, furloughs, or layoffs. Many millions of jobs could be lost permanently.
At the same time, we have witnessed an unprecedented and rapid shift in the way that those who have kept their jobs work, with home-based work suddenly becoming the new normal.
But let’s take a step back. Even prior to the COVID-19 pandemic, many types of disruption linked to technological change and shifting paterns of demand had already been challenging labor markets in many countries.
Some of these changes were highlighted in the 2019 World Development Report, “The Changing Nature of Work”:
- Big shifts in the mix of skills required to succeed in the labor market. Demand had increased for advanced (general cognitive and sociobehavioral) skills that complement technology, as routine jobs became automated, and for improved adaptability among workers.
- The rapid scale-up of digital platforms and disruption of production processes. Digital technology was challenging the traditional boundaries of firms, changing global value chains and the geography of jobs.
- Changes in how people work due to the rise of the so-called gig economy, in which organizations contract independent workers for short-term engagements instead of retaining workers as salaried staff.
In spite of these global changes, the 2019 World Development Report highlighted the paradox that in many developing countries, a large number of workers remained in low-productivity jobs, often in informal sector firms in which access to technology was poor. Overall, about two-thirds of the labor force in these economies has remained in the informal sector over the last two decades.
In response to these changes to labor markets, the Future of Work policy agenda entailed: 1. The need to ramp up investment in human capital (knowledge, skills, and health) and lifelong learning if workers were to adapt to future labor markets. These investments would include early childhood development programs and formal schooling through to higher education and adult learning programs; 2. The need to strengthen social protection, expanding safety net coverage and reforming financing arrangements and labor market norms to facilitate work transition and reduce disincentives to the creation of formal jobs; 3. The need to ensure affordable access to the internet while adapting regulations to confront the challenges posed by digital platforms (such as data privacy and protection and competition rules); and 4. The need to upgrade taxation systems to address tax avoidance and create fiscal space for universal social protection and human capital development.
How will these changes to work and related policy recommendations play out in the post-COVID-19 work?
It is likely that the pandemic will reinforce these pre-existing trends and increase the urgency of corresponding policy responses. For example:
- The adoption of digital technology will be turbocharged. “Platform firms” are expected to dominate markets even more. We are already seeing Amazon and Alibaba getting even bigger and stronger as brick-and-mortar stores are unable to compete. Companies will invest more in their ability to conduct business over the internet to be more resilient to potential lockdowns. Some “gig” jobs will continue to grow. But digital infrastructure is scarce or of low quality in many developing countries. Therefore, investment in in digital capacity and appropriate regulations for platform firms should be a global priority.
- Firms will have more incentive to invest in automation and reshore production to shield against value chain disruption. Many businesses relying on imported inputs are facing lack of intermediate goods as value chains are disrupted. They may need to ensure that suppliers are less vulnerable to travel restrictions.
- Pre-existing socio-economic disparities and vulnerabilities will be exacerbated, both within and across countries. Developing countries are likely to face persistently high unemployment and underemployment rates given the prevalence of self-employment and informal jobs concentrated in services sectors that have been most hit by the crisis. The COVID-19 outbreak is also expected to have implications for gender equity. Many women are employed in services jobs that expose them to a higher risk of contagion. The two sectors that are most exposed to infections and diseases – health and education – employ a disproportionate share of women. Social distancing measures associated with COVID-19 may also exacerbate the jobs divide that preceded the crisis. Jobs that are intensive in tasks amenable to remote work are more prevalent in richer countries, and among workers with higher levels of education, in salaried employment and with access to social insurance. This means that COVID-19 also reinforces the case for fundamental reform of our social protection systems. Strengthening social protection is critical to ensure that social assistance and social insurance programs address labor market risks and address the socio-economic disparities and vulnerabilities that will be reinforced by COVID-19.
- Labor demand will be weaker and jobs will be lost over the medium term. Despite unprecedented policy support, the World Bank projects a 5.2 percent contraction in global GDP in 2020—the deepest global recession in eight decades. The crisis may have persistent effects on economic activity. The affected labor-intensive sectors will need months to come back to speed, which will generate significant jobs losses. Aggregate demand is also expected to be depressed for an extended period as many households will deplete savings or incur substantial debt. Surviving firms will need to rebuild their balance sheets, but some will close permanently, and many will be less able to invest. To respond to weaker labor demand and job losses, more balanced labor regulations alongside a conducive business environment will be key for recovery.
- Debt and fiscal space will be big challenges. Many countries are providing sizable fiscal support through budgetary measures, as well as monetary liquidity. Such fiscal measures have replaced a proportion of lost incomes and mitigated default risk. However, in developing countries, these measures have come on top of an already fragile fiscal situation as the past decade has seen the largest, fastest, and most broad-based increase in debt in these economies in the past 50 years. A renewed focus on strengthening taxation systems to create more fiscal space is therefore critical to address the threat of debt unsustainability.