Labour markets can be likened to onions. At its core are individual workers, enveloped and surrounded by macroeconomic layers. These layers, including industrialisation, globalisation and wealth inequality, mould and configure our labour markets. Depending on the country and era, both labour markets and onions can vary in size, shape and strength. Even if the outer papery layers peel away, many layers remain to protect our core labour force. Despite this, onions are still very fragile, as demonstrated in December 2019 when the coronavirus epidemic sliced our labour market onion into pieces.
COVID-19’s initial impact on labour markets was both unprecedented and asymmetric, resulting in global retrenchment, a historic recession and over seven million deaths. The UN Department of Economic and Social Affairs estimated that 8.8% of global working hours -equivalent to 255 million full-time jobs- were lost. To put that into perspective, that is around four times the number lost during 2008’s Great Recession.
Government responses like lockdowns and furlough schemes had some long-term effects on labour markets, such as Trump’s protectionist tariffs on Chinese imports leading to lasting inflation and deglobalisation across the epidemic. However, it will predominantly be fuelled by workers' adaptability to new social norms emanating from the pandemic and existing political and social disparities between countries regarding economic stability and labour market regulation.
There are a few pathways we expect the labour market to marinate and grow into. The rise in telework is most ubiquitous, propelled by innovation in digital solutions like video conferencing and document-sharing tools during the pandemic. Despite employer scepticism, studies suggest remote working will boost labour productivity and promote cost savings. A pertinent case exists in NASDAQ-listed Chinese travel agency Ctrip which saw a 13% performance increase with home working. Improved work satisfaction and a halved attrition rate led over half of the firm to switch to permanent remote working, leading to gains in remote working doubling to 22%- heralding a new paradigm for the modern workplace.
From a classical economic perspective, given that remote working effectively eradicates geographical immobility, we can assume that firms will act rationally and hire from less expensive labour markets within our wider global talent pool, potentially decreasing total costs and driving globalisation. COVID-19 exposed unemployment disparities for minority ethnic groups and immigrant workers but broader geographical freedom may mitigate the social immobility and income inequality faced by these underrepresented workers, as higher-skilled labour can be hired regardless of location. Long-term this may increase the government's marginal propensity to invest in firms' remote working efforts through subsidies, or firms may adopt localised pay rates across specific regions. However, lower wage growth may be expected, with labour economist Julia Pollak predicting reduced pressure on firms to raise wages as workers lower living costs by saving on commuting, work attire and housing by teleworking
Remote working will be most prevalent across tertiary and private sectors, particularly within professional, technical and administrative industries. This trend is best exemplified through telehealth Indian firm Practo gaining 175 million new users and their online teleconsultations growing tenfold. Remote working is part of a larger digitalisation process within the labour market post-pandemic, following a shift from project-based tech to digitally integrated systems. Global digitalisation efforts will foster employment in mainly primary and secondary sectors, especially growth in delivery, transportation and warehouse jobs, following the rise in e-commerce over the pandemic after increased retail and grocery delivery within the delivery economy.
But is digitalisation entirely beneficial? Workers lacking digital proficiency may find themselves disadvantaged within the labour market, resulting in heightened market failure through labour inequality. This structural unemployment may widen social polarisation by predominantly affecting low-wage occupations, with an estimated 25% more workers needing to switch occupations than before the pandemic. Digitalisation may also increase monopolistic power for larger firms, leveraging their technical economies of scale to safely invest in these growing digital solutions, which can raise barriers to entry for newer firms and reduce consumer sovereignty.
Author John T. Fleming aptly stated, “The pandemic has accelerated the growth of the gig economy”. Given the low barriers to entry, COVID-19 drove an influx of workers to contingent gig work for additional or even primary income; a trend likely to continue long term. Despite increased competition, gig workers may feel empowered by greater employment flexibility and incentivised to skill up, ameliorating labour productivity and morale. However, its precarious nature, exacerbated by neoliberalism and the pandemic, may ferment future employment instability, yielding cyclical unemployment in coming years.
Although our labour market onion may have been sliced into pieces, this disruption may be instrumental in developing new recipes for future economic prosperity. The onion is but a single ingredient in the greater heterogeneous global menu and the COVID-19 pandemic may create new dishes of labour market development, leading to a more flavourful global economic landscape.
Finn Regan and Sam Binnington are students at St George's School, and were one of our five finalists of the Young Economist of the Year competition 2024.
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