Answer to Question #178084 in Macroeconomics for jamila

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

Answers:

Question a. The effects of loss in labor -hour on the global output/GDP in 2020 In monetary terms, global labor income fell by an estimated US$3.7 trillion (using 2019 market exchange rates) in 2020 relative to 2019. This corresponds to 4.4 per cent of global GDP in 2019. Those sizeable labor income losses could push households into poverty and cause them to reduce their consumption once savings have been used up, further diminishing aggregate demand. See the figure below.

Question b. The loss in labor income (8.3 percent) was lower than the loss in labor working-hours (8.8 percent) owing to the various mitigation measures that were put in place by various states. such mitigation measures were aimed at cushioning various inter-sectoral individuals that were hard hit by the pandemics leading to massive job losses or unemployment. These measure included but not limited to the following: job retention schemes in which individuals were organized to work in shifts; instead of laying off of workers, some sent into inactivity, and final labor income support that was offered to support the worst hit sectors such as accommodation, transport among others. See figures below