The COVID‑19 global pandemic outbreak in 2020 sent an unprecedented shockwave across labour markets worldwide, shooting up unemployment to alarming heights. As the global economy gradually rebounds, millions are still trapped in joblessness while at the same time many developed economies struggle to fill job vacancies. How can both be happening at the same time?
Although the global economy has been gradually recovering, the speed of job creation is generally lagging. Many regions are facing the prospect of an economic recovery accompanied by protracted high rates of unemployment and increases in informality.
Moreover, many developed economies, including Australia, Canada and the United States, and numerous economies in Europe, are confronted with acute labour shortages even as some of those countries still have unemployment rates above the pre-pandemic level. These labour shortages are not only holding back recovery from the crisis, but are also damaging the longer-run growth prospects.
This seemingly paradoxical situation is being triggered by a number of factors happening at the same time. An unbalanced rebound of the global economy across different sectors and changes in the composition of demand are causing rapid shifts in the demand for labour. In other words, the jobs wiped out by the pandemic are not necessarily the same ones that are hiring today.
The pandemic has also changed the pattern of labour supply. Among many other factors, the risks posed by COVID-19 made many occupations much less attractive for workers. In Europe, one of the reasons for the persistent worker shortages is also the ageing population.
This shortage of workers faced by numerous industries around the world may lead to different economic scenarios. In some cases, it may lead to increased productivity as companies invest more in capital-intensive technologies.
A more positive scenario would entail the development and implementation of policies to address the twin problem of elevated unemployment and acute labour shortages, including increases in wages, especially for the lower-skilled jobs, investment into safer workplace and better working conditions, such as flexible work hours and options to work remotely.
Mitigating the entrenched mismatches between labour supply and demand will require economic policymakers to develop and implement active labour market policies, such as profound analysis of labour market trends, training and placement, matchmaking between companies and jobseekers, provision of tax incentives for companies expanding their workforce, and expansion of public employment services.
Find out more in the November Monthly Briefing on the World Economic Situation and Prospects.
