OECD Employment Outlook 2021

It is 16 months since the outbreak of the COVID‑19 pandemic sparked a global health crisis without parallel in living memory. With vaccination rates speeding up in many countries, the future is starting to look brighter, but more for some and less for others. The economic and jobs crisis it unleashed is far from over. Uncertainties, including the spread of new variants of COVID‑19, loom on the horizon. The pandemic has cost lives and livelihoods.

Economic growth has taken a massive hit. Many OECD countries will not re‑gain the pre‑COVID GDP levels before 2022, and for many emerging and developing countries this target will take even longer to reach.

The pandemic has also cost jobs. At the end of 2020, around 22 million jobs had vanished in the OECD compared to 2019. And globally 114 million jobs had disappeared. In the OECD area, despite a gradual recovery, there are still over 8 million more unemployed than before the crisis, and over 14 million more inactive people. At the end of 2020, OECD countries were only half-way towards a full employment recovery. A recovery to pre‑pandemic levels of employment in the OECD will not be reached by the end of 2022, according to our projections.

COVID‑19 has also accentuated economic and social divides. It has amplified existing inequalities in labour market outcomes, skills, and opportunities. It has accelerated the digital transformation and automation, providing opportunities for many to continue work remotely, but also widening the gulf between workers. Teleworking became mainstream for many high-skilled workers but remained peripheral in many low-skilled occupations. At the beginning of the crisis, low-skilled workers were more likely to lose their jobs. High skilled workers were more likely to reduce their working time.

The unprecedented scope and scale of state support for reviving and reinvigorating our economies is a source of hope. Now we have a unique opportunity for bold labour market and social policies to avoid locking in inequality and exclusion as a legacy of the crisis.

That recovery must focus on the most vulnerable – youth, women, the low skilled and some self-employed – to ensure a transition from exclusion to inclusion.

Failing to address inequality and exclusion now is likely to result not only in deeper social divisions but will have negative ramifications for productivity and economic recovery.

During the pandemic, government support for firms and households was unprecedented in breadth and depth. For example, in the first half of 2020, despite GDP per capita falling by 12.4% across the OECD, real household gross disposable income grew by 3.7% on the back of largescale COVID‑19 government support. Despite major support, however, the toll of the crisis has not been equally spread. The COVID‑19 crisis has accentuated – and further deepened – economic and social divides in the OECD.

Some sectors – including tourism, food services and the arts – bore the brunt of COVID‑19 lockdowns. Other sectors not only suffered less but recovered more quickly. While there was one pandemic, its impact was felt unequally. Skills, education, income, and gender divides were exposed by the crisis.

In low-paying occupations, as the COVID‑19 crisis hit, one in ten jobs were destroyed across the OECD. While in high-pay occupations the shock was, in most countries, absorbed through reductions in working time, supported by generous job retention schemes, or by switching to teleworking. At the peak of the crisis, half of workers with top earnings were able to work from home, against only 29% among low-paid workers.

Other vulnerable labour groups, such as workers on non‑standard contracts and youth, have been hit hard by job and earnings losses. And these groups are often weakly covered by earnings replacement benefits and job retention support, though many OECD governments tried to close these gaps with emergency measures.

The crisis also highlighted, and compounded, other forms of economic and social disadvantage, such as greater exposure to the virus for “frontline” workers. Homes were often ill suited for working and studying for many lower-income households. Many working parents struggled to juggle work and childcare. Unequal access to computers between affluent and poor households highlighted the digital divide at school.

The crisis accelerated the digital transformation and automation, which even before the pandemic favoured those with higher skills and in ICT-related occupations. Evidence from online job postings suggests that during the crisis, hirings in those occupations involving routine and physical abilities that were already losing ground before the crisis have plummeted. At the same time, those occupations involving cognitive and digital skills that were projected to expand, resisted the downturn in hirings better. In parallel, ageing of the working population may hinder the speed of job reallocations towards growing sectors and firms, which typically accelerate during the recovery phase. Such reallocations often require both occupational and geographical mobility as well as the acquisition of new skills.

All this suggests that the COVID‑19 crisis risks amplifying the longstanding trend towards increasing economic inequalities in many OECD countries. In the decades before 2020, real household incomes diverged, having grown, on average, by 63% for the top 10% of households, and only by 20% for the bottom 10%, since 1985.

Long-standing disparities in opportunities and outcomes have weakened the ability of vulnerable workers and households to withstand the pandemic crisis, despite efforts to help them with emergency measures. This is not new. Crisis periods often bring about further challenges in the labour market, often compounding pre‑existing ones.

Governments in most OECD countries and beyond have announced unprecedented plans for the recovery. This provides a once‑in-a-lifetime opportunity to address the main long-standing structural challenges that have been exacerbated by COVID‑19.

In previous recoveries, most countries quickly tightened their public finance belts. This time, enormous resources have been made available in the next five to ten years. The Government of the United States is committing trillions of US dollars, while the European Union is borrowing on behalf of its member countries for the first time to support often large national recovery and resilience plans for the next five years.

“It ain’t over till it’s over”. As economies roll out their recovery plans in coming months, it is essential to continue supporting families most in need and jobs that remain viable, while providing the right incentives for job creation and resuming work. Withdrawing support too soon to the many still in need risks generating mass bankruptcies and job losses in sectors still deeply affected by containment measures, making the recovery more difficult and uncertain. The short-term costs of these measures can be reduced by enhancing the targeting of support to the most vulnerable sectors, companies, and households, while fostering start-ups and job creation.

Promoting reallocation of workers towards expanding job opportunities will indeed be key to sustain the economic recovery and address the labour market challenges brought about by the crisis. Temporary hiring subsidies can be an effective tool to promote job creation and a number of OECD countries have recently introduced or renewed such schemes. Evidence from the global financial crisis suggests that hiring subsidies can boost job growth and be cost effective. Incentives could also be used to promote the mobility of workers from supported to other jobs. For example, governments could consider temporarily reducing employee social security contributions for workers starting a new job in a firm not receiving job retention support or temporarily providing an in-work benefit. These job mobility bonuses would promote the reallocation of workers towards expanding firms.

It is also an imperative to strengthen the resilience of the labour market to better withstand potential future shocks, which could include other pandemics, natural disasters and threats from climate change.

The recovery from the pandemic will take place in a context of profound transformation of our economies and labour markets and the process of creative destruction. Certain tasks will either be taken over by machines or offshored, while new, often greener, jobs will be created. The doubling of the incidence of teleworking during the peak of the COVID‑19 pandemic, often involving jobs where distant work was considered impossible, is a stark reminder of how this process can suddenly be accelerated. While some jobs and activities are likely to return to their pre‑pandemic ways, the persistent increase in vacancies requiring full-time home working confirms that business models are changing.

To allow people to better harness the opportunities brought about by such transformations, to keep their jobs or move to new, more productive ones, upskilling and reskilling will be crucial.

However, training opportunities are significantly unequal while skills policies often fail to reach those adults who are more at risk. On average, across OECD countries, participation in training by those with less than secondary education is one‑third of that of highly educated adults. Similarly, workers whose jobs are at high risk of automation are one half less likely to engage in adult learning than their peers in jobs with a lower risk.

Rapidly changing skills needs in the recovery and beyond require a significant upscaling of adult learning opportunities as well as the development of new tools for promoting skills investments over the whole career. All efforts should be made to foster a culture of continuous lifelong learning and linking training to individuals rather than jobs. Awareness of the benefits of training could be raised through information campaigns and career guidance, which should identify training pathways from occupations with low growth potential to occupations with high growth potential. Training formats should also address bottlenecks such as workers’ lack of available time and prohibitive monetary costs, by making them more modular and flexible, partially subsidising individual costs and/or developing better financial incentives. Employers can and should play an important role in this respect, and they should be helped and encouraged to train groups at risk.

The crisis risks leaving deep scars on those who lost their jobs at the beginning of the pandemic, and in particular vulnerable groups marginally attached to the labour market who face major or multiple employment obstacles (such as single parents with young children, people with disabilities, low-qualified youth not in employment, education or training – NEET). These groups are often left outside the scope of active labour market policies (ALMPs). Where this is the case, ALMPs should be expanded to provide these vulnerable people with integrated, comprehensive, and individualised support in order to reconnect them with good opportunities in the labour market.

More generally, ALMPs play a crucial role in fostering the resilience of a labour market in transformation. The COVID‑19 crisis, by increasing caseload while generating a slump in job vacancies, has posed a significant challenge to public and private employment services. About two‑thirds of OECD countries have increased their budget for public employment services since the onset of the crisis. But increasing spending may not suffice. Among the countries that were more effective in responding to these challenges are those where the infrastructure to scale up support while ensuring quality employment and training services was already up and running. Building this infrastructure takes time and will require medium-term planning. It will also require harnessing the potential of digital technologies to better identify and match the skill needs of firms and the skill sets of workers, and to develop appropriate profiling tools, without leaving the most difficult clients unserved. Many countries have made substantial progress in this respect during the crisis but additional investments in digital capacity and efficient internal processes are still necessary in many of them.

In the last decades, non-standard forms of employment, such as on-call or zero-hours contracts, as well as various forms of own-account work, have grown in many countries in response to changes in preferences, innovations in business models and technological developments. Yet, significant gaps in access to social protection exist between workers on standard, full-time, open-ended contracts, and those in non-standard forms of work. The self-employed are usually less well covered by statutory social protection provisions. Many workers in other forms of non-standard employment (e.g. temporary, intermittent work), while being equally covered in principle, still struggle to gain effective access, because they fail to meet minimum contribution periods or earnings, and for this reason also remain off the radar of active policies.

Addressing gaps in social protection, where they exist, should be a priority. Proactive action is needed to extend the reach of programmes that often exclude specific categories of workers. The portability of entitlements between social insurance programmes that are intended for different labour market groups should be boosted. And it is important to ensure a more neutral treatment of different forms of work to prevent arbitrage between them. At the same time, means tests should be made more responsive to people’s needs by changing the reference periods for the needs assessment and putting appropriate weight on recent or current incomes of all family members. Many countries put in place emergency support for the self-employed after the outbreak of the COVID‑19 crisis, temporarily filling a few of these gaps, but that experience should now be re‑assessed and translated into a more systematic structural response, capable of ensuring fairness and restoring incentives.

Two years ago, the OECD Employment Outlook was calling for a transition agenda for a Future that Works for all – a whole‑of-government approach that targets interventions on those who need it most. Implementing this agenda is more than ever a priority to ensure that the opportunities that digitalisation, globalisation, green technologies and longer lives can bring will be seized, the associated risks mitigated and those who are left behind by the digital transformation and globalisation reconnected. Policies to build a more productive, rewarding, greener, and inclusive world of work require adequate financial resources – in particular for strengthening active policies, lifelong learning, and social protection. Before the crisis, often strict constraints on public finances made financing this transition a difficult endeavour. More resources are available now. A window of opportunity is opening. Let us not waste it.

Stefano Scarpetta

Director for Employment, Labour and Social Affairs

OECD