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Is a labor recovery possible without workplace equality?

By Vandhana Ramesh Co-authored by Rohan Kataria & Ezeanochie Chibuike Samuel

Abstract

More than a year after the World Health Organization (WHO) officially declared COVID-19 a pandemic, infection rates remain high across the world, especially in the US, UK, and several European, Middle-Eastern and South Asian countries including India. In 2020, promises were made that the workforce would see a job recovery in 2021; this goalpost has now moved to 2022 owing to breakouts of more severe variants of the virus itself. This article examines the various challenges faced by vulnerable workers, and the rising threat of inequality across various strata: income, digital access, gender, and migrant status.

Wage trends and workers’ status

In the COVID-19 context, workers have been categorised threefold (WEF 2020):

  1. ‘essential workers’ such as delivery personnel, healthcare personnel, food servicers, agricultural workers and manufacturers of medical goods;

  2. ‘remote workers’ being those who can work from home and are likely to keep their jobs;

  3. ‘displaced workers’ such as those in hospitality, retail store jobs, service work as well as tourism, who have been displaced in the short term and potentially permanently as well.

Generally speaking, millions of workers in the primary, secondary and tertiary sectors have lost their jobs as a result of total lockdown caused by the pandemic. It has been reported by the International Labour Organization (ILO 2021b) that a total of 81 million workers (71 percent of those who lost their jobs) left the labor force altogether, compared with 33 million who became unemployed. A job forecast has been made to fill up the unemployment gap by 2022. Unfortunately, the employment growth forecast of 100 million jobs will not be sufficient to accommodate millions of workers who have lost their jobs as well as new labor entrants (ILO 2021d).

Figure 1: Composition of Working-Hours Lost by Region, 2020


Unequal lockdowns


Upon India’s imposition of a sudden, tight lockdown last year in March, it was estimated that 140 million were jobless and left in the lurches (Economist, 2020). Many of these millions were migrant workers who were left stranded with no economic support or even trains to take them home, their only solace being the hope of reaching home at last. Colombia’s lockdown incited protests working-class barrios, and in Altavista, a neighbourhood in El Salvador, residents hung white flags from their windows to show that they have run out of food. The Malawian government had to make a choice when faced with a lockdown that would halt jobs, education, healthcare and exacerbate the risks of deaths due to hunger, TB and malaria, at the benefit of 12,000 deaths that could be avoided from COVID. The costs of this lockdown outweighed the benefits by 25 to 1 (Economist, 2020)

The short-term statistics from various countries show that two-thirds (⅔) of the countries experienced a decline in wages while surprisingly in the remaining one-thirds (⅓) of the countries the average wages shot up. The countries like the United Kingdom, Sweden, Germany, etc witnessed downward pressure on the wages, ostensibly due to stronger job retention schemes, and on the other hand in the countries like United States, Norway, France, Italy the average wages rose with unprecedented job losses. This reflects a “composition effect” in the economy, since most of the jobs lost were lower-paying ones (ILO 2021a)


Figure 2: The “composition effect” in selected countries, shown by average wage indices and unemployment rates, 2019 and 2020



Summarily, lockdowns modelled around richer countries only exacerbated inequality and poverty in poorer countries.

Tele-workability under quarantine

High-wage white-collar workers are the most able to substitute and adapt to remote work, whereas blue-collar workers face a difficult choice: risk the spread of COVID in physical jobs, or face unemployment. If work-from-home becomes permanent in the post-covid economy, low wage jobs stand to be relegated. These jobs continue to struggle in 2021.

In the US and several advanced European countries, about 40 percent of jobs can be performed at home, ranging from 24 percent in Italy to 42 percent in Germany (Brussevich, Dabla-Norris & Khalid, 2020). This number is nearly halved in developing economies, where only up to 20 percent of urban population can work from home; worse, the number is much smaller if the rural population is taken into account.


Figure 3: Jobs that can be done at home typically earn higher wages


Source: Dingel and Neiman 2020; (data is US specific)

A seminal and revealing working paper by the IMF shows that remote work may not be equally welcomed by all workers. The paper “…find(s) that workers least likely to work remotely are concentrated in the sectors hit hardest by the crisis: accommodation and food services, transportation, and retail and wholesale sectors.” (Brussevich, Dabla-Norris & Khalid, 2020).

It further finds that those most affected by this transition to remote work are lower wage workers, women without access to digital devices, younger workers, part-time or temporary workers, employees in SMEs, foreign-born individuals and migrants. Most distressingly, workers in the bottom two deciles of the hourly earnings distribution are significantly less likely to work remotely than workers in the top two deciles. All these data points point towards exacerbated inequality in 2022 and onwards.

The effects of this unequal transition to remote work are gendered as well. Men on average are less likely to be in jobs that can be performed at home. This is largely because women’s employment tends to be concentrated in public sector, care, or education jobs. Women workers could thus be at lower risk of losing jobs.

However, this is not reflected in data that shows women’s jobs have suffered more than those of men. Women’s employment declined by 5 per cent, compared with 3.9 per cent for men. Furthermore, more women have become inactive following unemployment, (nine in ten women, compared with seven in ten men) meaning that more women than men are not actively looking for re-employment or are not ready (or able) to engage in paid work (ILO 2021d)

Such a trend may be explained by the fact that female workers without adequate safety nets, due to sickness or childcare responsibilities, often leave jobs entirely. It is also the case that women disproportionately lack access to digital devices. Thus, women’s jobs tend to be at higher risk in countries with a larger digital gender divide (IMF 2020).

Tele-workability or remote work is thus likely to worsen inequality in the workforce, since it is the most vulnerable workers that are at the highest risk from the pandemic.

The skills gap

If we consider, for example, a construction worker and a software engineer in India, the percentage differential between their wages may be called a skill differential. This skill differential reflects the degree of wage structure inequality and approximates the return to human capital in each country. The differential can increase or decrease depending upon the supply-side and demand-side factors of skilled labour – education and training generating the supply of skilled workers, and technological change driving the demand for skills (Autor, 2018).

WEF’s Future of Jobs Report (2020) found that “on average, companies estimate that around 40% of workers will require reskilling of six months or less and 94% of business leaders report that they expect employees to pick up new skills on the job, a sharp uptake from 65% in 2018” (pg. 5). In addition, 84% of the employers they surveyed reported that they planned on adapting to the COVID-economy by accelerating the digitalization of work processes (e.g. use of digital tools, video conferencing).

Combined with the fact that many blue-collar workers lack access to reliable digital devices, as well as the fact that many have had to sacrifice children’s education or higher education, this expectation of re-skilling the economy will weigh heavily on such workers. The transition to online education too can only benefit this sector if given access to basic amenities like laptops, WiFi connectivity, and digital skills. Only the public sector can create and support such ventures on a large scale – either through direct outreach programs, or via subsidies to companies that take up the re-skilling.

The skill gap can also affect human capital and the education of children in developing countries – for instance, exported goods or services that are skill-intensive will promote the acquisition of education in those regions, whereas exports from industries that are unskilled or labor-intensive can promote child labor practices. Studies warn that FDI flow into such industries that hire children can even increase child labor (Doytch, Thelen & Mendoza 2014).

Migrant workers and their unique challenges

In 2000, the IMF acknowledged that workers moving from one country to another to find better employment were impeded by the numerous barriers to migration from developing to developed countries, unlike the freedom of movement that capital is allowed. It is well reported now that migrant workers are especially underserved and vulnerable to employment shocks such as that of the pandemic.

Migrant workers compound the previously mentioned “composition effect” of jobs in many countries – despite having high participation in the labor force, they disproportionately make up low-income households in their host countries. For instance, in the European Union, migrants from outside the region are at risk of poverty many times more than EU nationals. They also tend to have a lower average income (EIB 2016). Perhaps both these findings are interrelated. Arab states have the largest proportion of migrant workers to natives, and have an income gap between the two groups that is exceptionally high (ILO 2021c). According to the ILO, high-income countries show an average migrant pay gap of 12.6 per cent, where 10 per cent remains unexplained by any differences in labour market characteristics (Amo-Agyei 2020). This is likely due to discrimination. Thus, migrant workers have already been receiving the short end of the wage and security dividend – this has only worsened during the pandemic.

The fallout of this effect isn’t only to the workers themselves, but their families as well since they rely on remittances. The availability of migrant remittances provides some level of economic security to these families, which reduces barriers to children’s education. Often, it is the expectation of better wages from non-migrant jobs that incentivises such parents to send children to school; in the absence of remittances, there may be a greater risk of resorting to child labor to supplement income (Dinkelman & Mariotti 2016).

Crises such as COVID-19 weaken safety and legislative infrastructure, and in the absence of any decent formal or informal credit for families, households may become more desperate. Unorganised and informal-sector migrant workers were at the highest risk of being exploited by factories when faced with a surge in production demand in India, during the lockdown – many of their children were also victims of bonded labor (Chopra 2020).

Recourse mechanisms for migrant workers are scarce. Even in the EU, worker co-ops and unions do not always include migrants. Temporary workers are instead made to rely on NGOs, if any, that can provide them support. However, there is a precarious consequence to this exclusion – union representation without temporary migrants makes the migrant workers a more affordable and safer option for companies. In one case in the Czech Republic, a recently sacked employee noted that, ‘In the end there were only temporary workers on the production line.’ (p. 137, Burgmann 2016). Not only does this reduce the bargaining power of core employees, it makes migrant workers more vulnerable.

Social tensions and COVID

It is obvious that mass job losses create deep tensions within an already struggling working class society. Such a pandemic is bound to aggravate the fault lines in society, such as by worsening ethnic or religious tensions, reversing poverty reduction trends, testing already lacking social safety nets, and raising the power of governments to expand corrupt or non-transparent practices, adding to public mistrust. During just the second half of 2019, major protests or other forms of disorder occurred in locations as diverse as Bolivia, Chile, France, Hong Kong, India, Iraq, and Lebanon, and it is unclear whether the covid crisis has worsened these tensions or not.

Some measures of social and economic unrest that reflect this are as follows:

  • Baker et al. (2016), who constructed an index for economic policy uncertainty (EPU) for 12 major economies using newspaper archives that go back to 1985. It shows that the EPU is linked with reduced investment and employment, and higher stock price volatility.

  • A new measure of social unrest termed the Reported Social Unrest Index (RSUI), which makes use of the Dow Jones’ Factiva news aggregator to pinpoint trends in social tensions across countries, shown below.

Figure 4: Fraction of countries with social unrest events, 12-month moving average



Source: IMF WP, Measuring Social Unrest Using Media Reports, WP/20/129

Analysis by the IMF projects that, surprisingly, the number of major unrest events worldwide is at its lowest level in nearly five years (Fig 5). However, past experiences with epidemics and crises hint that such unrest will likely worsen post-pandemic once its effects become more apparent.

Figure 5: Unrest and Mobility Declines during the COVID-19 Pandemic



Source: IMF Research Perspectives, Fall/Winter 2020; Google mobility index.

Conclusion

In the absence of any optimism of an imminent labor recovery, those who will be most affected are those who were already vulnerable prior to the pandemic: low-wage workers, women, child laborers, migrants, and unskilled workers in the informal sector. Given that these groups have faced much hardship under sudden lockdowns and kneejerk layoffs, post-pandemic, we may expect social tensions to be high. Policy responses from governments will have to be manifold:

  • Adequate safety nets and positive legislation in favor of informal and low-wage workers

  • Attention to the gendered labor force, and the unique needs of female workers across industries

  • Protection, recourse mechanisms and job security to migrant workers who have been universally hit hardest by the pandemic

  • Re-skilling or subsidisation of re-skilling efforts by companies for workers without access to these resources

  • Preventing child labor by incentivising education, providing better credit access to vulnerable families, and by cracking down on bonded labor in factories.

Some of the problem pointed out are a result of not only poor policies, but an ever-hastening process of globalisation that faces little barriers. Addressing the fallouts of globalisation will require a re-examination of global trade and labor architecture on an international scale. Sutton & Green (2020) propose threefold reforms:

  1. Anti-concentration policies that reduce the consolidation of power in large MNCs that can abuse and exploit workers. This may be done by changing anti-trust laws, or increasing the ability to unionise.

  2. Anti-impunity laws that create substantial and unavoidable penalties for companies that violate hiring standards, such as by restricting the import of goods that are made with forced or bonded labor.

  3. Anti-arbitrage policies that prevent tax avoidance or exploitation of global trade architecture. Eg. by incorporating labor, environmental, and certain other fair competition standards into anti-dumping calculations.

While the above are certainly more ambitious proposals, it is unlikely that the global status of workers will improve without these broad changes.


References

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