OECD Employment Perspectives

Coping with the COVID-19 Crisis and Recovery [1]

The COVID-19 crisis affected economic activity in OECD countries. Low-paid employees, often with fixed-term contracts and low levels of education, and young people have suffered the devastating effects of the crisis.

Firms are restructuring to accelerate pre-existing mega-trends such as automation and digitization.

Job retention schemes have been the main tool used in many OECD countries to mitigate the impact of the COVID-19 crisis on the labor market.

To cope with the sudden rise in unemployment, about two thirds of OECD countries increased their public employment service budgets in 2020, and about half of them plan the same in 2021. Digital service delivery has rapidly expanded to support employees and employers.

According to the latest data, one year after the onset of the crisis, the number of hours worked is still far from the pre-crisis level. In March 2021, the average time worked was still 7% below the December 2019 level for 10 countries. In OECD countries, the decline was more than 15%.

Some employees from different industries took on most of the burden, while others suffered less and benefited more quickly from the recovery. In low-paid occupations, working hours in OECD countries fell by more than 28% - 18 p.p. more than in highly paid occupations Among those with only a low level of education, the impact of the crisis on the number of hours worked was almost three times that of those with a high level of education.

Youth were particularly hard hit by the recent crisis. Youth unemployment in OECD countries rose sharply with the onset of the pandemic, and the number of hours worked by young people fell by more than 26%. As a result, the proportion of people not in education, employment or training (NEET) increased at the onset of the pandemic. By the end of 2020, the average NEET among 15-29 year olds of 12% remained a full percentage point higher than the previous year.

On the contrary, for the highly educated, almost all the reduction in working hours was due to the reduction of working hours, which did not affect unemployment.

In many OECD countries, employment is projected to remain below pre-crisis levels at least until the end of 2022. As support decreases and becomes more targeted, new jobs may be cut.

OECD Broad Government Support. Between Q4 2019 and Q2 2020, despite a decline in GDP per capita of 12.4% in the OECD region, real gross disposable household income increased in most countries and by 3.7% in the OECD region against the background of large-scale of COVID-19 government support measures.

Preliminary evidence suggests that corporate restructuring is accelerating already existing trends, such as automation, digitization and the growing demand for health and environmental professionals. In the future, governments should give priority to upgrading the skills and retraining of those employees most affected by the pandemic.

Job retention schemes during the COVID-19 crisis

Job retention schemes (JRs) have been the primary tool used to contain the impact of the COVID-19 crisis on jobs in most OECD countries.

By investing in JR schemes, governments sought to protect firms and employees from the costs of government-imposed restrictions and broader social distance measures, and to contain the impact of the health crisis on the economy and society as a whole.

The JR scheme proposes four main contributions:

1.    institutional analysis of the main characteristics of job retention schemes;

2.    statistical portrait of their use and critical factors;

3.    discussing their possible impact on job retention and job creation during the COVID-19 crisis based on available preliminary data;

4.    comprehensive discussion on the policy challenge of preserving jobs while supporting the transition to jobs in companies and sectors with better growth prospects.

On average, the OECD use of JR support peaked in April 2020, reaching an unprecedented level of about 20% of employment, supporting about 60 million jobs, more than ten times more than during the global financial crisis.

The use of JR schemes was particularly widespread in sectors most affected by government restrictions, such as hotels and restaurants, arts and entertainment, and wholesale and retail trade. As a result, the frequency of JR support was relatively high among young employees, who represent a disproportionate share of the labor force in these sectors.

Recommendations for creating JR schemes to ensure their profitability and support for job creation:

1) Provide timely JR support to companies affected by social distancing restrictions. Where possible, payments should be partially made in advance, and any necessary compliance checks should be done later.

2) To prevent JR schemes from becoming an obstacle to job creation and job redistribution during the recovery, they should gradually become more job-oriented, which are likely to remain viable in the medium term in companies or sectors where activities may resume.

Active labor market policies and COVID-19

In the still uncertain recovery, active labor market policies (ALMPs) play an important role in helping laid-off employees find jobs more quickly. At the same time, ALMPs are needed to support the integration into the labor market of groups facing serious barriers to employment to create a more inclusive labor market during the recovery period.

Many countries responded quickly by increasing funding for their public employment services (PESs), training programs, employment subsidies and other measures to increase labor demand. PESs hired additional staff and expanded remote and digital access to their services to ensure continuity of service.

In response to the COVID-19 crisis, OECD governments are developing or implementing medium- and long-term strategies. These strategies include the reformulation and expansion of ALMPs and increased funding for their PESs.

Many countries adopted or expanded measures to promote job creation and increase labor demand. Nearly two thirds of OECD and EU countries increased their employment incentives and 42% reduced social security contributions for some or all employers.

Countries targeted their new measures at young job-seekers, the long-term unemployed, persons with disabilities, the elderly unemployed and other disadvantaged groups. Direct job creation programs in the public sector and start-up incentives were also expanded.

Investment in digital infrastructure of employment services will be the key element. Those PESs that had full-fledged digital tools before the COVID-19 outbreak were able to better serve their clients by providing unfettered income support, supporting job seekers through remote access. Many countries made a qualitative leap in the digitization of employment services during 2020 and 2021.

How can institutional structures for the provision of ALMPs support a flexible response in times of crisis?

There is a schematic structure helping to identify the key features of ALMPs that can respond quickly to changes in labor market conditions and effectively adjust ALMPs:

1.    ALMP.organizational structure - shared responsibility for ALMPs, coordination and cooperation among key stakeholders

2.    Legal framework for ALMPs Regulations - key legislation related to the development and implementation of ALMPs.

3.    System capacities - resources of employment services and ALMP measures.

Increased resources for displaced employees and other risk groups through contractual services in Austria and Belgium (Brussels): Corona-Joboffensive (Corona Initiative), Austria

Within the framework of Corona-Joboffensive, the Austrian government introduced a new funding package to support more than 100,000 participants from October 2020, including unemployed job seekers, unemployed young people without qualifications, returning to the labor market and other target groups.

The new package combines a number of different measures, most of which are outsourced to third-party contractors, including both non-profit and commercial entities. Among the measures:

·      Professional consulting and education and career planning advice tailored to individual requirements.

·      Labor market training to support skills development and retraining in growing professions and sectors, with emphasis on digitization; science, technology, engineering and mathematics (STEM); green economy; and care, health and education.

·      Incentives for startups.

Participants completed a qualification course or training under the Corona Employment Initiative, which lasts for more than four months, receive an education bonus (EUR 180 per month) in addition to their regular unemployment benefits.

The growth of domestic outsourcing and its impact on low-paid occupations.

A large share of employees in OECD countries work legally in one firm, but in practice work in another. For example, cleaners, security and cafeteria staff often work physically on the premises of the same firm, but their legitimate employer is a third-party ancillary service firm. This also applies to the majority of temporary jobs in recruitment agencies and a significant proportion of the self-employed. Such third-party employment relations are often referred to as the "internal outsourcing" or "market employment arrangements".

Internal outsourcing may be beneficial, but it may also be risky. For example, the lead firm may take advantage of higher productivity or savings from outsourcing services. This could result in higher productivity and higher earnings for employees remained in the lead firm.

However, there is also a risk that outsourced employees will end up with lower wages and poorer working conditions.

Evidence suggests that internal outsourcing, measured by inter-firm service contracts, is on the rise in many OECD countries. Employment in administrative and support services, which mainly provide general business ancillary services to other firms, increased significantly. Examples include cleaning and security services, temporary employment in agencies, call centers and ancillary services such as post offices.

On average, in OECD countries, the share of guards employed in administrative and ancillary services increased 38% to 54% in 1995-2019, while the share of cleaners employed in this sector increased 16% to 31% over the same period.

Overall, the use of administrative and support services declined more than in the private sector as a whole during the crisis. Internal outsourcing may lead to increased income inequality.

Attention needed to be focused on the role of collective bargain agreements. Many European OECD countries rely on industry agreements, but it is often unclear which agreement applies to those who outsource.

In the Netherlands, for example, temporary employees of the agency and some other contractors working on the site are to be paid under the collective bargain agreement of the lead firm for similar work. In addition, in a number of OECD countries, collective bargain agreements applicable to temporary employees are the most favorable to an employee.

The level of collective bargaining should also be taken into account. In Australia, there is a form of wage regulation through the Modern Awards system, which is a combination of minimum wages based on occupation and industry. Regardless of the country and collective bargaining system, outsourcing reduces the wages of outsourcing employees.

Working hours and their regulation in OECD countries

On average, in OECD countries, regular weekly working hours for full-time employees remained constant in 1995-2019. The average staff member typically worked 40.5 hours a week in 2019, from 37 hours in Denmark to 48 hours in Mexico and Colombia. Since the mid-2000s, the share of paid overtime has remained stable at just over 7.5% of full-time employees, while the share of unpaid overtime has decreased slightly 6.2% down to 5.1%. For those who work overtime, the average number of additional hours is significant, amounting to 8.3 for paid overtime (7.7 for unpaid overtime) or one additional day per week in 2019.

Several conclusions can be drawn based on how working hours, paid leave and telecommuting were regulated in OECD countries in 2020:

• OECD countries can be grouped into six groups with different time management models. They are characterized by the extent to which normal and maximum weekly working hours may vary upwards:

• For example, in Chile, Israel and Mexico, the rules are the same - no changes are allowed, while some changes are possible through either deviation or averaging. In France or Lithuania; in Austria, New Zealand or Sweden, regulations may vary more. However, these patterns only affect normal working hours per week to a limited extent.

• In most OECD countries, employees are entitled to the minimum statutory amount of paid annual leave. 
• Access to remote work is not guaranteed in all OECD countries. Legal rights to request remote work, if any, can be extended to all staff (as in New Zealand or Spain) or to certain categories (as in Lithuania). In the Netherlands, Portugal and the United Kingdom, employees have a legal right to request remote work, while in some other countries employers can easily refuse such requests. The way in which remote employees are regulated also varies. 

The number of working hours and working schedule vary significantly between different groups of employees:

• The prevalence of very short working day is higher, while long working day is lower for women and employees with low levels of education compared to men and highly educated employees. 

• Flexible working schedule, allowing employees to choose their own schedule, is most often used by highly educated and highly paid employees. 

• Prior to the COVID-19 crisis, remote jobs were most commonly used by men, highly educated and highly paid employees in most OECD countries. Differences between educational and income groups increased during the first lockouts, when 55% of highly educated employees were able to work on average from home compared to 19% of low-educated employees.

• There are also important differences in the amount of work needed to achieve a certain level of material well-being. In several OECD countries in 2019, one childless minimum-wage employee had to work more than 40 hours a week to escape poverty.

• Overall, 43% of employees in OECD countries were unhappy with the amount of time they spent working in 2015, with too much work being the main cause of dissatisfaction. 

Conclusion.

The initial shock of the COVID-19 crisis has seriously disrupted economic activity in OECD countries. Restructuring firms to accelerate pre-existing mega-trends, such as automation and digitization, will be important for a rapid recovery.

It is also necessary to restore employment in the labor market in order to prevent the risk of long-term unemployment. At the same time, the structure of job retention schemes should be adjusted to support recovery

All OECD countries regulate working hours to varying degrees, but there are significant differences in the stringency of rules and in the hierarchy between the legislative and harmonized. Understanding these differences is necessary to analyze the relation between the regulation and working time outcomes.

[1] https://read.oecd-ilibrary.org/employment/oecd-employment-outlook-2021_5a700c4b-en#page1