Answer to Question #178099 in Macroeconomics for tandy

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)

Loss of labor-hour leads to decline in the real gross domestic product.

(b)

Covid-19 has led to low productivity due to unemployment . There is low labour income lost since Wages have typically remained stagnant as people work indoors. Covid-19 has led to low production through severe decline in working hours because of the high rate of unemployment.