TWN Info Service on UN Sustainable Development (May22/08)
30 May 2022
Third World Network

UN: Labour market recovery suffers significant setback, says ILO
Published in SUNS #9584 dated 30 May 2022

Geneva, 25 May (Kanaga Raja) -  The number of hours worked globally deteriorated in the first quarter of 2022, to 3.8 per cent below the pre-crisis benchmark of the fourth quarter of 2019, equivalent to a deficit of 112 million full-time jobs, according to the International Labour Organization (ILO).

In the latest edition of its Monitor on the World of Work, the ILO said that recent containment measures in China account for the bulk of the global decline.

The ILO said that these estimates for the first quarter of 2022 present a marked deterioration compared to its previous projections of January 2022 (2.4 per cent below the pre-crisis level, equivalent to 70 million full-time jobs).

The conflict in Ukraine has had not only a regional impact but has also hit the global economy by increasing inflation, especially in food and energy prices, and disrupting global supply chains, said the ILO report.

"In addition, heightened financial turbulence and monetary policy tightening is likely to have a broader impact on labour markets around the world in the months to come."

"There is a growing but uncertain risk of a further deterioration in hours worked over 2022," said the ILO.

"The global labour market recovery has gone into reverse. An uneven and fragile recovery has been made more uncertain by a self-reinforcing combination of crises. The impact on workers and their families, especially in the developing world, will be devastating and could translate into social and political dislocation," said ILO Director- General Guy Ryder.

"It is now more essential than ever that we work together and focus on creating a human-centred recovery," he added.

LATEST TRENDS

According to the ILO report, the COVID-19 pandemic created an unprecedented labour market crisis in 2020 followed by an uneven, uncertain and fragile recovery over 2021.

It said at the start of 2022, labour markets are now reeling from further shocks that stem largely from the Ukraine conflict, which has significantly disrupted trade and commodity markets, with a rapid increase in prices, especially of essential goods including food and energy.

The overall economic and political environment is considerably more uncertain than it was at the beginning of the year, said the report.

"Global growth is projected to reach just 3.6 per cent in 2022, which is 0.8 percentage points lower than January 2022 projections."

After a brief spike at the end of 2021 and early 2022, workplace closures are currently on a downward trend, the report noted.

While most workers still live in countries with some form of workplace restrictions, the strictest form of closure (economy-wide required closures for all but essential workplaces) has nearly disappeared.

The report said these recent reductions in strict workplace closures were particularly pronounced in Europe and Central Asia, where currently 70 per cent of workers face either only recommended closures or none at all.

This is in stark contrast to the corresponding level of 10 per cent in Eastern Asia, the only region currently not following the recent trend towards more relaxed measures, it added.

After significant gains during the last quarter of 2021, the level of hours worked showed a marked deterioration during the first quarter of 2022, said the ILO.

During the first quarter of 2022, global hours worked were 3.8 per cent below the level of the fourth quarter of 2019 (the pre-crisis benchmark), equivalent to a deficit of 112 million full-time jobs. This represents a setback in the recovery process since the last quarter of 2021 when the deficit in global hours worked was smaller, at 3.2 per cent, it added.

"The recent containment measures implemented in China account for the bulk (86 per cent) of the global decline in hours worked in 2022 Q1."

The ILO said these estimates for the first quarter of 2022 present a marked deterioration compared to its previous projections of January 2022 (2.4 per cent below the pre-crisis level, equivalent to 70 million full-time jobs).

"The conflict in Ukraine is already impacting labour markets, with a collapse in hours worked in Ukraine and a sizeable deterioration in the Russian Federation, with declines of 15.0 and 1.3 percentage points relative to 2021 Q4, respectively."

More broadly, global inflationary pressures especially in food and energy prices, disruptions to the global supply chains, heightened financial stress, and monetary policy tightening are yet to impact fully labour markets around the world, said the report.

It said in contrast to the immediate and direct effects on hours worked of COVID-19 lockdown measures, declines in economic activity due to financial and other shocks generally translate fully into such losses only after a time lag, adding that there is therefore a growing risk of a further deterioration in hours worked over 2022.

"Indeed, the current outlook is highly uncertain, with clear downside risks for the already fragile recovery," it said.

Globally, the level of hours worked is expected to decline further in the second quarter of 2022, an evolution that is mainly driven by China's continued containment measures, and will be exacerbated by developments related to the conflict in Ukraine, the ILO added.

The ILO's latest projection for the second quarter of 2022 shows that the level of hours worked is expected to be 4.2 per cent below the pre-pandemic level, which is equivalent to 123 million full-time jobs.

"GREAT DIVERGENCE" IN LABOUR MARKET RECOVERY

Beyond the aggregate trends, the "great divergence" between richer and poorer economies continues to characterize the labour market recovery in 2022, said the report.

"High-income countries have experienced a strong recovery since the first quarter of 2021. However, in the first quarter of 2022, the level of hours worked in these economies was still 2.1 percentage points lower than the pre- crisis benchmark, even if this was a marked improvement on the 5.4 per cent deficit observed at the beginning of 2021."

In contrast, the ILO said low- and lower-middle-income economies suffered setbacks in their recovery at the start of 2022.

Already constrained by limited fiscal space and vaccination roll-outs, these countries are now being buffeted by the impact of financial, food and energy shocks, it added.

The ILO said that in low-income countries, hours worked decreased further from a gap of 3.1 per cent in the first quarter of 2021 (relative to the last quarter of 2019) to 3.6 per cent in the first quarter of 2022.

"Lower-middle-income countries saw a larger deterioration in the gap in hours worked from 4.3 to 5.7 per cent, while hours worked in upper-middle-income countries recovered during 2021 but have since registered losses, reflecting mainly the developments in China."

These diverging trends are likely to worsen in the second quarter of 2022. Driven by strong labour demand, hours worked in high-income countries are projected to further increase in the current quarter, said the ILO.

In contrast, low- and middle-income countries are expected to experience stagnant and falling hours worked in 2022 Q2, it added.

The report also said that newly available estimates show a setback for gender equality in hours worked. Before the pandemic, the gap in hours worked in employment by women and by men was already large, with women aged 15-64 working an average of 19.8 hours per week, compared to 34.7 hours per week for men.

The recovery has been insufficient to bring the gender gap in hours worked back to the pre-pandemic level, it said.

"Despite significant improvements in 2021, the gender gap in hours worked expanded during the first quarter of 2022. In 2022 Q1, the global gender gap in hours worked was 0.7 percentage points larger than the pre-crisis situation (fourth quarter of 2019)."

The great divergence between richer and poorer countries evident during the recovery period is also reflected in the gender gap in hours worked, said the report.

It said women and men in high-income countries have both experienced a strong recovery in hours worked. By the fourth quarter of 2020, the increase in the gender gap, which was most pronounced in the second quarter of 2020, had been fully reversed in these economies.

The ILO said that since then, hours worked by women in high-income countries have recovered faster than those of men.

"At the current rate of progress, it would take 30 years to close the gap in hours worked in high-income countries."

In contrast, the gender gap in low- and middle-income countries remains larger than the pre-pandemic level despite some progress, said the ILO.

It said in the first quarter of 2022, the gender gap in hours worked was 1.1 percentage points higher than in the last quarter of 2019, with the situation being similar in lower-middle- and upper-middle-income countries (1.0 and 0.4 percentage points, respectively).

"In terms of absolute numbers, in the first quarter of 2022, men worked an average of 10.5 more hours per week through employment than women in low-income countries, 15.7 more hours in lower-middle-income countries (excluding India), and 9.1 more hours in upper-middle-income countries."

In line with the overall divergence in hours worked, employment levels had recovered in most high-income countries by the end of 2021, while deficits remained significant in most middle-income economies, said the ILO.

It said in advanced economies with available data (34 countries), the divergence in the employment-to-population ratio from the last quarter of 2019 had been mostly eliminated by the end of 2021.

In about 60 per cent of the countries, the employment-to-population ratio in the last quarter of 2021 was, in fact, already higher than the pre-crisis level (2019 Q4) with a median gain of 0.3 percentage points.

In contrast, in the majority of middle-income countries with available data (13 countries), the employment deficit continued to be significant in 2021 Q4, up to five percentage points, with a median deficit of 1.4 points relative to the fourth quarter of 2019.

The employment deficit in these developing economies is matched by the persistent higher rates of inactivity, which had a median gap of 1 percentage point in the fourth quarter of 2021 (relative to 2019 Q4).

The report said these figures indicate that the recovery in hours worked has been accompanied by a strong rebound in employment in advanced economies as people have returned to the labour market, while in the middle-income countries, the employment deficit persists.

In 2021, three out of five workers lived in countries where average annual labour incomes had not yet recovered to their level of the fourth quarter of 2019, it added.

The ILO said that according to the latest estimates of labour income which take into account newly available data as well as the impact of support measures, global labour income in 2021 surpassed its pre-crisis level by 0.9 per cent.

This development was driven by high-income countries and China, which together account for more than 80 per cent of global labour income.

The ILO said that workers in low-, lower-middle- and upper-middle-income countries (excluding China) still faced reduced labour incomes in 2021, at rates of -1.6 per cent, -2.7 per cent and -3.7 per cent, respectively, compared to the pre-crisis situation.

Differences in the recovery in hours worked and in productivity growth partially explain this global divergence in labour income trends. With global inflation projected to remain high in 2022, there is a risk of further impacts on real labour incomes, it added.

INFLATION, WAGES & EMPLOYMENT

Unlike the developing world, many advanced economies have experienced strong employment recovery since early 2021, said the ILO report.

It explained that the strength of recovery in high-income countries is reflected in sharp increases in job vacancies relative to the number of jobseekers, a situation which is often referred to as labour market tightness.

Analysis of countries with available data (a sample of 39 economies including 35 high-income countries) suggests that labour market tightness has increased substantially with respect to the pre-crisis level, it said.

In these countries, labour market tightness increased by a median average of 32 per cent, meaning that for each unemployed worker, there are now 32 per cent more vacancies than before the pandemic.

The ILO said large increases in vacancies have been driven by several factors. Stronger-than-expected demand, partly due to excess savings in the early phase of the pandemic, has led to an increasing demand for labour.

It said other pandemic-specific drivers include shifts in demand to goods from services, supply-chain disruptions, hesitancy - particularly among older workers - to return to employment, higher but unmet demand for flexible working arrangements and reductions in migration flows.

As hiring normally involves significant time and costs, the "excess" vacancy postings can persist for an extended period, it added.

Evidence of increased labour market tightness does not automatically imply that advanced countries are close to full employment with the risk of "overheating". Data shows that labour markets are generally not overheated, the report pointed out.

Currently, there is no real sign of labour market tightness in developing countries where recovery is slower, more fragile and uneven, which negatively impacts labour demand, it added.

The report also said that increasing inflation impacts real incomes of households, which risks reducing aggregate demand and delaying recovery from the COVID-19 crisis.

"The current rise in inflation is driven strongly by a sharp increase in commodity prices, particularly for food and energy."

As firms pass on higher input prices to consumers, the purchasing power of households will fall in the absence of commensurate income increases. Consequently, aggregate demand could fall significantly, hampering economic growth and employment, it added.

Low-income households that spend a significant share of income on food items are at particular risk of falling into poverty and may even face food insecurity and hunger, said the report.

Real wages grew more slowly in 2021 than before the pandemic. In countries with available data (7 middle-income countries and 18 high-income countries), median nominal wage growth was 5 per cent in 2021, while median real wage growth was only 1.6 per cent due to the impact of rising inflation rates, it added.

The ILO said with global inflation projected to increase significantly from 4.7 per cent in 2021 to 7.4 per cent in 2022, there is a risk that many households will face significant reductions in disposable incomes unless their wages increase strongly in line with prices.

However, it said that to date, there is little evidence that wages are causing an inflationary spiral.

The available evidence for 16 high-income countries does not suggest a positive relationship between the increase in labour market tightness and real wages since 2019, it added.

This would seem to indicate that the overall risk of a wage-price spiral in the near future remains low, said the ILO.