Answer to Question #177944 in Macroeconomics for Prama

Question

According to an ILO quarterly update on the global labor market, workplace closures and job losses due to the COVID-19 pandemic in 2020 has led to a loss of 8.8 percent of global working-hours, which is equivalent to the loss of 255 million full-time jobs.

a. Explain the effects of this loss in labor-hour on the global output/GDP in 2020, with the aid of a potential GDP and labor market diagram.

The same update goes on to say that the global labor income in 2020 declined by 8.3 percent, equivalent to US$3.7 trillion.

b. Can you explain why the loss in labor income (8.3 percent) was lower than the loss in labor working-hours (8.8 percent)? Use diagrams to support your argument. (Hint: think of labor productivity)

Answer 1

a)According to the ILO Monitor: COVID-19 and the World of Work, the losses resulted in an 8.3% drop in global income, equivalent to $3.7 trillion or 4.4 percent of global GDP, before support measures were taken into account (GDP).

Youth (15-24 years old) suffered a job loss of 8.7%, compared to 3.7 percent for adults. According to the ILO, "this illustrates the all-too-real danger of a lost generation."

The worst-affected sector was lodging and food services, which saw jobs drop by more than 20% on average, followed by retail and manufacturing.

b) Reduced working hours for those who are employed or unprecedented levels of job loss, affecting 114 million people2, account for the missed working hours. Significantly, inactivity, rather than unemployment, accounted for 71% of these job losses (81 million people), implying that people left the labor force because they were unable to work, possibly due to pandemic constraints, or simply stopped looking for work. By concentrating exclusively on unemployment, the effect of COVID-19 on the labor market is significantly understated.

These major losses resulted in an 8.3% decrease in global labor income (before support measures), equating to US$3 billion.