Jobs bounced back with vigour since 2021 – but uncertainty looms. While the world economy recovered rapidly as it emerged from the COVID crisis, the consequences of Russia’s invasion of Ukraine have dealt a fresh blow to global prospects. This risks stoking a renewed economic and social crisis, as supply shocks in food and energy lead to significantly higher prices and an expected sharp slowdown in the economic recovery – putting the cost of living and challenges in employment under intense scrutiny.
Tight labour markets and a shortage of workers have been a defining characteristic across much of the OECD in the past year: in June 2022, OECD countries registered an overall net gain of over 9 million jobs compared to pre-pandemic levels. In the US, more than 11 million job vacancies were posted in July 2022, against a pool of less than 6 million unemployed.
However, there are significant variations across countries and groups. Labour force participation and employment rates remain below pre-crisis levels in some countries, as does employment in low-pay and low-skilled jobs. Wage growth is struggling to keep pace with price rises. The result? Vulnerable households, already lagging behind in the recovery, are facing the biggest erosion of their real incomes.
Price hikes in energy and food following Russia's invasion of Ukraine have ratcheted up pressure on the cost of living, which was already edging up before February 2022. Lower-income households, which must devote a significantly larger share of their incomes to necessities, are being hit especially hard by the inflationary squeeze caused by the supply shock. Data from the six largest European countries show the bottom fifth of households by income have had to increase household expenditure by about 50% more than the top fifth in response to the supply shocks in energy and food.
The risk of a wage-price inflationary spiral is lower than in the past. Key structural changes in the labour markets in recent decades – namely, the removal of wage indexation and an increase in employer market power – now mean less upward pressure on wages, despite tight labour markets. However, this has left lower-income groups more exposed to declines in real incomes.
Low-pay workers have been dealt a fresh blow following Russia's invasion of Ukraine. Already hit hard by the COVID pandemic, low-pay industries had been recovering far more slowly than other sectors even before February 2022. In the first quarter of 2022, employment in accommodation and food services was, on average, 9.0% below its pre-COVID level.
Those more likely to work in low-pay industries – the young, lower-skilled workers, migrants and other vulnerable groups – have been hit harder than others. The average employment rate for young people was still lower than before the crisis in more than half of all OECD countries.
Prioritising support for the most vulnerable will minimise the disproportionate impact on low-income households. This requires a comprehensive negotiation between governments, workers and firms. Measures aimed at tackling longer-term structural challenges in the labour market, including improving the quality of jobs, will help underpin a more robust, more sustained recovery. There are three areas governments could focus on:
Two years into the pandemic, economic activity has recovered faster than expected. However, the labour market recovery is still uneven across sectors and is threatened by the economic fallout from Russia’s aggression against Ukraine, which has generated the fastest growing humanitarian crisis in Europe since World War II, sending shockwaves throughout the world economy. The 2022 edition of the OECD Employment Outlook reviews the key labour market and social challenges for a more inclusive post-COVID‑19 recovery.
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