How has the Covid-19 pandemic affected the global labour market in 2023?
Following on from an earlier article unpacking the drivers behind the tightness of the UK’s labour market, Senior Adviser Andrew Sentance takes the same question to understand whether or not this is part of a regional or global trend in labour markets.
In our March blog we highlighted three broad issues relating to the UK labour market. First, the tightness of the labour market. Second, sluggish productivity – which meant that disappointing GDP growth was associated with a relatively high demand for labour. Third, a withdrawal of labour supply during and following the pandemic – which was attributed to ill health, early retirement/lifestyle choices and changes in working practices which occurred during the pandemic.
In this blog, we look at 3 labour market metrics across a wider range of economies to understand whether this picture is replicated across the global economy, or whether there are significant differences in labour market performance.
- Unemployment rates, as a key measure of labour market tightness
- Productivity growth
- Labour market participation, to understand whether the withdrawal of labour seen here in the UK is happening in other countries.
We have analysed data for 11 major economies from the period 2018 to 2023 – covering the pandemic and recovery from it. These economies are the top 10 in the world by nominal GDP at market prices plus Korea, which is the 12th largest. This gives a good geographical spread across the world economy – with 4 Asian economies (China, India, Japan, Korea), 4 European economies (France, Germany, Italy, UK) and 3 economies in the Americas (Brazil, Canada, US). Together these 11 economies account for around 70 percent of world GDP in 2023, according to the latest IMF projections. So they provide both a good indication of the global labour market situation and regional variations.
1. Unemployment rates
The chart below shows unemployment rates, as reported by the IMF or ILO, for 2018 (pre-pandemic) and 2023 – which is a forecast for the whole calendar year, published last month. The general picture is that over this period, labour markets have tightened or remained tight in all countries. 8 of our 11 countries have seen a reduction in their unemployment rate since 2018, with the biggest reductions occurring in the higher unemployment countries.
The countries where unemployment is expected to be very slightly higher in 2023 than 2018 still have low jobless rates – around 4 percent or below: China, UK and Germany. The (unweighted) average of unemployment rates across the 11 countries has fallen from 6 percent in 2018 to a projected 4.6 percent in 2023. This represents a significant tightening of global labour market conditions.
2. Productivity growth
Sluggish productivity growth has been an issue in many economies across the world since 2000. And with some notable exceptions, the chart below shows that it has been a major contributory factor to the labour tightness we have observed across the global economy as we have recovered from the pandemic. 6 out of the 10 economies shown in the chart have experienced a decline in productivity since 2018, albeit a mild reduction. The significant outliers from this disappointing productivity picture are China, the US and Korea.
The UK is not a significant outlier in this sluggish productivity picture, so it is reasonable to conclude that disappointing productivity growth has been a major contributor to labour tightness worldwide. It has raised the demand for labour associated with even modest rates of economic growth. This may be a reflection of the steps taken to protect employment during the pandemic, particularly in Europe, and the impact of changes in consumer behaviour during the pandemic which have affected key services sectors like hospitality and aviation.
3. Labour market participation
The third factor we identified in our earlier blog about the UK was the withdrawal of workers from the labour force. A similar trend has been identified in the US, where it has been labelled “The Great Resignation”. The chart below shows two summary measures which can shed light on whether something similar is happening in other countries.
The first is the change in the ratio of total employment to the number of people in the population. The second is a similar measure – labour force participation – which takes into account the unemployment rate. If the employment rate increases, as it has done for example in Brazil, this may just be because the unemployment rate has fallen. The labour force participation rate is therefore probably the better measure of whether a significant labour withdrawal has taken place.
The story here is that there is no consistent pattern across the 10 major economies for which we have reliable employment data. Labour force participation has dropped by 1.8 percentage points in China, but risen by 1.9 percentage points in Korea. Europe is a mixed picture with the participation rate rising in France and Germany but falling in Italy and the UK.
But on average, the countries shown on the chart do not show major evidence of a labour market withdrawal due to the pandemic. China and the UK are the most significant countries where this has taken place, with Brazil, Canada and the US experiencing a slight drop in labour force participation.
Global labour markets have tightened significantly through the period of the pandemic and recovering from it. Sluggish productivity performance has been the major contributory factor to this trend, but the impact of workers withdrawing from the labour force has been confined to a few countries – of which the UK and China are the most significant.
For policy-makers around the world, the main lesson is to understand why productivity growth has been so weak in many countries – and to develop policies to address this. But this is a long-term challenge, and the necessary policies and measures are likely to vary from country to country.
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