Evaluating the global impact of COVID-19 on labour markets

Labour markets are the foundation and key drivers for economic expansion. COVID-19 has caused an unprecedented shock to the labour market, pushing nearly half of the global workforce towards the risk of losing their livelihoods. This article intends to evaluate the global impact of Covid-19 on labour markets.

Global scenario

According to data from the International labour organization, global unemployment rate stood at 5.4 per cent in 2019 and was expected to be the same in 2020 while things took a turn for the worse with the Covid-19 outbreak. Governments across the globe are dealing with this crisis by imposing lockdowns and social distancing norms thus halting all economic activity. The gradual decline in unemployment rate observed between 2009 and 2018 appears to have come to a halt and has taken a rather steep jump to 12 -13%.


Goldman sacks has come up with one of the most cautioning global growth forecasts of 2020 with a value of -2% for the global economy which was earlier predicted to be 3.6% before the corona outbreak. Growth is predicted to be as low as -6% for US and -9% for European countries post corona. According to recent reports The International Monetary Fund (IMF) has further slashed India’s growth estimate for 2021 to 1.9% from 5.8% estimated in January, warning the “worst recession since the Great Depression”.

These forecasts directly take into account the aftereffects of nationwide lockdown. The primary assumption here is that 25% of the activity would be wiped out in three weeks of government-imposed lockdown. The only effective response to this health crisis represents a physical constraint on economic activity, which is different from say a financial crisis where there is a shock to the financial sector. As a result of the physical constraint, there is a sharp contraction in economic activity across the globe.


Governments and central banks in developed countries are hastily deploying aggressive macroeconomic policies to fend off the global economic catastrophe caused by COVID-19 pandemic. Despite the urgency of these measures, it is essential to design responsive policies with utmost care, as we might not have another shot to get this right. Given that the shock is unprecedented, policy responses need to be unprecedented too. Since, this is a global health emergency the first line of defence has to be to contain the spread of the virus and to cure with the infected population. In the Indian context, market participants are looking forward to the execution of targeted and carefully calibrated fiscal policies rather than temporary measures.

Going ahead, the course of economic activities are bound to be shaped by lockdown period, global recession and changes in consumer behaviour. The depressed global demand has collapsed commodity markets and there is a likelihood of debt crisis with the depletion of savings and increasing debt levels of households, corporates and governments.

As governments are providing fiscal and monetary stimulus, it remains to be seen how much loss in the economic activity is recovered, and the degree to which productivity levels are restored. All these factors will decide which economies will emerge out of this crisis stronger.

Effect on labour markets

COVID-19 is bound to have far-reaching impacts on labour market outcomes worldwide. Beyond the urgent concerns about the health of workers and their families, the virus and the subsequent economic shocks will impact the world of work across three key dimensions i.e. the quantity of jobs, quality of work and effects on specific groups who are more vulnerable to adverse labour market outcomes.

As witnessed in 2008 economic crisis, the shock to labour demand is likely to translate into significant downward adjustments to wages and working hours. Often in an informal economy, self-employment acts as a default option for survival or maintaining income as it does not typically react to economic downturns. For this reason, informal employment tends to increase during a crisis. However, the current limitations on the movement of people and goods may restrict this coping mechanism as well.

The decline in economic activity and constraints on people’s movements is impacting both manufacturing as well as service sectors adversely as global and regional supply chains have been disrupted. The income generated from service sectors such as tourism, travel, food &beverages, entertainment, and retail are especially down thus placing millions of jobs at risk.

Labour supply is declining because of quarantine and social distancing measures catalysing a fall in economic activity. Overall losses in labour income due to rising unemployment and underemployment are estimated to be in the range of 860 to 3,440 billion USD. The loss of labour income will in turn translate into lower consumption of goods and services, which is detrimental to the continuity of businesses and ensuring that economies are resilient.

Based on past experience and current insights on the COVID-19 pandemic it can be concluded that dire crises, economic or otherwise can have a disproportionate impact on certain segments of the society, thus worsening inequality. Older people, especially those with underlying health conditions are at highest risk followed by underemployed youth. Women are over-represented in most vulnerable sectors such as services and front line responses staff (e.g. nurses). The ILO estimates that 58.6 per cent of employed women work in the services sector around the world, compared to 45.4 per cent of men thus imposing a disproportionate burden on them in case of closure of schools, restaurants, salons and care systems.

Unprotected workers, such as self-employed, casual and gig workers are likely to be disproportionately hit by the downturn of the economy as they do not have access to conventional social protection mechanisms such as paid/sick leaves or severance pays, and lack access to other forms of income smoothing such as options to work from home. Migrant workers are particularly vulnerable to the impact of the COVID-19 crisis, as it has restricted their ability to access their workplace in destination countries as well as modes to return to their families.

Policies & measures

Primary focus of the government should be on developing a human-centred approach to crisis recovery, designed to effectively stimulate demand and offer protection to workers and enterprises.

First step would be to ensure the safety of workers, employers and their families from the health risks of COVID-19. Large-scale public support and investment would be required to spread awareness and implement protective measures at the workplace and across communities. While investing in healthcare systems is crucial in building resilience against COVID-19 it also offers an opportunity to create decent jobs.

Secondly, timely implementation of large-scale and coordinated policy measures to provide employment and income support in order to stimulate the economy and labour demand. These measures not only provide a cushion to enterprises and workers against immediate employment and income losses, but also help prevent a chain of supply shocks and demand shocks that could lead to a prolonged economic recession.

Active implementation of fiscal policies and social protection measures such as targeted transfers, unemployment packages, along with public investment and tax relief for low-income groups, informal sector workers and MSMEs. Fiscal policies can be complemented by accommodative monetary policies including interest rate reductions, reserve rate relaxation and targeted liquidity provisions. Financing targeted lending and financial support can go a long way in providing protection and smoothing the recovery of enterprises. Setting up the infrastructure for remote working can also promote employment retention.

Currently businesses are rapidly adjusting to the changing needs of their customers and suppliers while navigating operational and financial challenges as their resilience is being tested like never before.



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