Answer to Question #177961 in Macroeconomics for Tiash

Question

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

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.