What we’re reading about employment in times of multiple crises

COVID-19 has caused a severe employment shock with an equivalent of 230 million estimated full-time jobs losses in 2020 relative to 2019. After more than two years into the pandemic, we see signs of a strong but uneven recovery.

Still, for 2022, the global employment-to-population ratio is projected to be 1.5 percentage points below the level of 2019. The mounting food, fuel, fertilizer, and finance crises will likely worsen this outlook and affect the ongoing recovery. While employment rates are moving in the right direction, overall, large concentrated and persistent losses remain.  Youth and lower-skilled workers are among the most affected groups and are also experiencing a sluggish recovery. The losses experienced by the hardest-hit workers may have long-lasting, for now hidden effects.

Evidence from past crises indicates that when it comes to employment, full recovery to pre-crisis trends is often a myth and leads to scarring, particularly for youth. In previous crises we have seen that low-skilled workers can suffer up to a decade of lower earnings after a crisis, while high-skilled workers rebound fast, exacerbating inequality. In some countries where informality is prevalent, labor market scarring is stronger for workers who cope with a crisis by becoming self-employed, rather than unemployed.

Beyond scarring of workers who lose their jobs or switch to worse jobs, crises and slowdowns can have long-term negative effects on labor market trajectories of new entrants to the labor force. Workers who first enter labor markets in tough times have been shown to have lower earnings than otherwise similar workers who entered labor markets in good times.

There is a risk that this hidden employment crisis may be forgotten as further crises unfold.  Even more so, the large potential impact among youth and lower-skilled workers calls for targeted labor market policies to avoid scarring of these groups. This includes training programs for re- and up-skilling, employment assistance and entrepreneurship support. This can help reverse human capital losses to improve both current and future productivity and growth. Our present may be transformed, but our future can still be shaped.

Essential readings

Below is a list of relevant publications about the effects of crises on employment. In each case, we highlight the paper’s main finding and provide a link to it. Note that many of the highlighted findings refer to previous crisis and may not apply to the pandemic. 

• The earnings cost of job loss is concentrated among workers who find reemployment in lower-skill occupations, and that the cost and incidence of such occupation displacement is higher for workers who lose their job during a recession. (Huckfeldt, American Economic Review, April 2022)
• Unemployment scarring is lower in contexts with robust employment protection, both under positive and negative macroeconomic environments. (Gonalons-Pons & Gangl, Socio-Economic Review, January 2022)
• In Latin America, the pandemic has negatively affected the labor market status of both men and women, but the effect is significantly stronger for women, magnifying already large gender gaps. (Viollaz et al., IZA, February 2022)
• This paper examines the shares and transition probabilities of individuals between labor market states to assess the short-term impact of the COVID-19 pandemic on the Italian labor market. (Fiaschi & Tealdi, IZA, February 2022)
• In the Latin America & Caribbean region, past recessions have led to persistent employment losses and accelerated structural changes away from the formal sector and has permanently scarred many low-skilled workers who may suffer up to a decade of low earnings. (Silva et al., World Bank, June 2021)
• This paper investigates the effects of the COVID-19 pandemic's economic shock on the employment of various types of workers in developing countries. (Kugler et al., World Bank, June 2021)
• The scarring effect of previous unemployment is more visible among senior workers, whereas the effect of previous self-employment is more significant among young workers aged 25-34 years. (Pritadrajatiab et al., Economic Analysis and Policy, June 2021)
• The author examines the early career economic outcomes of college graduates in the period between the Great Recession and the COVID-19 economic collapse. Recession entrants have lower wages and employment than those of earlier cohorts; more recent cohorts’ employment is even lower. (Rothstein, National Bureau of Economic Research, July 2020)
• The paper studies the impact of youth unemployment on men's cumulative wage experience up to 26 years later. It finds a large and significant wage penalty after controlling for education, region, family wealth and individual characteristics. (Gregg & Tominey, Labour Economics, August 2005)

 Broader jobs agenda

• Multiple challenges exist that prevent migration from achieving its full development potential, including high monetary costs, information gaps on employment opportunities in destination countries, etc. (Ahmed & Bossavie, World Bank, May 2022)
• This report explores the challenges that the private sector faces in the Middle East and North Africa region and offers policy recommendations for how governments can overcome continuing labor market stagnation that continues to undermine economic development and social progress. (Islam et al., World Bank, May 2022)
• The paper analyzes a four-arm randomized evaluation of a multi-faceted economic inclusion intervention delivered by the Government of Niger to female beneficiaries of a national cash transfer program. (Bossuroy et al., Nature, April 2022)
• The brief discusses the anticipated effects of the Russian invasion of Ukraine on migration and remittance flows as well as identifies how the global governance of migration can be strengthened and cross-border remittance flows facilitated. (World Bank, May 2022)
• Although the Latin America and Caribbean region’s contribution to greenhouse gas emissions is modest and can be reduced, the impact of climate change on its people and productive sectors will require significant adaptation. (World Bank, April 2022)
• The war in Ukraine is a human tragedy for the people of Ukraine, but its economic implications are global. The report identifies five trade and investment channels through which countries will be affected by the war in Ukraine. (World Bank, May 2022)
• The war in Ukraine is causing an enormous humanitarian crisis. Disruptions to regional supply chains and financial networks, as well as heightened investor risk perceptions, will weaken regional growth. (Guenette et al., World Bank, March 2022)
• While the quantity of commodities consumed has risen enormously, driven by population and income growth, the relative importance of commodities has shifted over time. (Baffes & Nagles, World Bank, May 2022)

This blog is based on the May 2022 edition of the Knowledge4Jobs newsletter, curated by the World Bank’s Jobs Group and Labor and Skills Global Solutions Group. Click here to sign up for the Knowledge4Jobs newsletter.