Crisis Response Monitoring Country comparison

Governments and businesses are struggling to understand what COVID-19 might mean for the future of work. One common theme depicts COVID-19 as an accelerator of changes already underway. With clear economic/financial winners and losers, many of these changes are viewed as disruptive. These concerns tend to focus on automation; online shopping and the retail sector; and the oil and gas sector.

In an interesting study, Joel Blit points out that in Canada (as in the United States) recessions have historically played a crucial role in reallocating productive resources. All declines in routine tasks associated with technological change in the past few decades have occurred after recessions. This has led to productivity increases in the medium- to long-term, but has also caused labour market upheaval in the short-run. He posits that the COVID-19 pandemic and its aftermath are likely to have similar effects, and likely larger and faster ones. Further, he argues that government should not waste resources promoting stability by trying to return to pre-COVID norms, but rather that faster change is better. Moreover, he suggests that the opportunity cost of change is lower because of the existing disruption from the pandemic.

A different set of issues involves changes that were largely unforeseen prior to the onset of COVID-19. This includes massive reductions in aviation and tourism, and especially the huge shift to remote working, which has important long-term implications for the labour market. The federal government, for example, is already looking to reduce its real estate portfolio and make telecommuting — a novelty at the outset of the pandemic — permanent. Telecommuting is also viewed as contributing to the climate strategy. Three of Canada’s major banks have also announced that staff will continue to work from home until at least April 2021. Although these employers have not yet made any long-term commitments, many firms are evaluating the potential cost reductions associated with shedding office space. This could have substantial impacts, both on the nature of work and on the physical infrastructure of cities.

More broadly, calls to reform employment insurance, human resource (and other) practices in healthcare, and many other initiatives are widespread in light of the COVID-19 experience. Simultaneously, there have also been calls not to undertake major reforms too quickly, but rather more thoughtfully. It is unclear which reforms undertaken during the pandemic will be sustained. The most enduring changes will likely be those originating organically as employers and workers learn the lessons of the pandemic, perhaps especially those not directly related to the crisis, such as the apparent cost-effectiveness of telecommuting.

1. Kristyn Frank and Marc Frenette, “Automation, Workers and COVID‑19,” Statistics Canada, June 29, 2020, https://www150.statcan.gc.ca/n1/pub/45-28-0001/2020001/article/00033-eng.htm.
2. See Canada Energy Regulator, Canada’s Energy Future 2020, https://www.cer-rec.gc.ca/en/data-analysis/canada-energy-future/2020/canada-energy-futures-2020.pdf; Gary Mason, “The Trans Mountain Pipeline Could Soon Be Canada’s White Elephant,” The Globe and Mail, Nov. 26, 2020, https://www.theglobeandmail.com/opinion/article-the-trans-mountain-pipeline-could-soon-be-canadas-white-elephant/.
3. Joel Blit, “Automation and Reallocation: Will COVID-19 Usher in the Future of Work?” Canadian Public Policy 46, no. S2 (2020): S192–S202, https://www.utpjournals.press/doi/full/10.3138/cpp.2020-065.
4. Guillermo Gallacher and Iqbal Hossain, “Remote Work and Employment Dynamics Under COVID-19: Evidence from Canada,” Canadian Public Policy 46, no. S1 (2020): S44–S54, https://doi.org/10.3138/cpp.2020-026.
5. John Paul Tasker, “Feds to Keep More Bureaucrats at Home, Overhaul Property Portfolio to Get to ʻNet Zero’ Emissions,” CBC News, Nov. 26, 2020, https://www.cbc.ca/news/politics/feds-greening-government-plan-1.5816747.
6. James Bradshaw, “Three Major Banks Push Back Office Return Dates for Workers,” The Globe and Mail, Nov. 25, 2020, https://www.theglobeandmail.com/business/article-td-bmo-cibc-push-back-office-return-dates-amid-latest-spike-in-covid/.
7. See, for example, Don Drummond and Duncan Sinclair, “COVID-19: A Catalyst for Change in Health and Healthcare?” CD Howe Institute, October 15, 2020, https://www.cdhowe.org/public-policy-research/covid-19-catalyst-change-health-and-healthcare.

The government reported important reforms about the pension system and about unemployment insurance. The unemployment insurance reform has been progressively implemented between September and November 2021. This reform increased from 4 to 6 months the duration of work necessary to be eligible for unemployment compensation, introduced a declining unemployment compensation according to the duration of unemployment for salaries above 3500 euros and modified the calculation of the salary taken into account to determine the amount of unemployment benefit. The pension reform is still postponed and might be implemented after the presidential election, in April 2022, depending on the elected candidate.

Beside the expansion of short-time work in the start of the crisis, the government has created a long-term short-time work scheme (Activité partielle de longue durée, Decree, 28 July 2020) designed to provide security for employees and business activity, which enables companies faced with a lasting reduction in activity to reduce working hours in return for commitments, particularly in terms of job maintenance. The long-term short-time work scheme can be mobilized by all companies – faced with a lasting reduction in activity – established on the national territory, without any size or sector of activity criteria. It requires a collective agreement, signed within the establishment, the company, the group, or the industry. In the latter case, the employer draws up a document that complies with the stipulations of the industry agreement. The reduction in an employee’s working hours may not exceed 40% of the legal working hours per employee, over the total duration of the agreement, which may be set up within the limit of 24 months, consecutive or not, over a period of 36 consecutive months. The employee receives an hourly indemnity for hours non-worked, paid by his employer, corresponding to 70% of his gross salary, up to a limit of 4.5 times the minimum wage. The employer receives an allowance equivalent to 60% of the gross hourly wage limited to 4.5 times the minimum wage. This scheme is quite successful: by the end of 2021, it covers about 200,000 workers and accounts for about 50% of all workers on short-time work (Figure 7).

Moreover, in order to ensure a sustainable recovery of the French economy, the government has implemented an exceptional €100 billion recovery plan based on three main components: ecology, competitiveness and social cohesion. The French stimulus plan weighs 100 billion euros, making it the largest stimulus plan in Europe as a percentage of GDP, weighing in at 9.5%, compared with 6.9% in Germany and 8.6% in the United Kingdom. It weighs about a third of the French government’s annual budget the previous year. Of the 100 billion announced, 40% comes from the 2020 European recovery plan, which will be reimbursable until 2058. The plan is intended to be structural, in order to “prepare France for 2030”, and not just cyclical.

In Germany, the COVID-19 recession may not only result in a departure from the long and rather stable path of employment growth (Schneider and Rinne 2020), but the crisis may also accelerate structural change and digitalization. At the worker level, working from home may become more frequently at least a realistic option. In Germany, about one in six jobs may be permanently suitable for working from home (Pestel 2020). At the firm level, digital tools may be increasingly viewed as a hedge and reinsurance against external shocks. In this respect, the crisis is also an endurance test of firms’ past digital achievements, and their past omissions become very visible (Engels 2020).

In terms of disruptions or structural breaks at the sector level, it is very likely that the crisis will accelerate the long-term decline of local retail, often delivered through smaller shops, while all forms of online retail will experience an extra boost. As digitalization also continues in the health sector and in education, the skill needs of workers in these sectors will change accordingly. The ongoing transformation of manufacturing, in particular of car manufacturers and their suppliers, may proceed more rapidly than expected before the crisis.

At the same time, however, and contrary to widespread beliefs, significantly shorter or less complex global value chains in industrial production are unlikely to occur. Firms in the post-crisis situation may even rely to a larger extent on cost-saving initiatives, which typically include outsourcing and offshoring. The crisis will by no means reverse this development and it will not trigger a trend to bring production back to Germany – for a simple reason: the level of automation in German manufacturing is already very high (Krzywdzinski 2020). This assessment may, however, differ from “essential” sectors: Here, too, there are discussions about reshoring production back to Germany, but mainly because of security concerns and to guarantee the supply of the German population even in emergency situations (e.g., in the areas of infrastructure, energy supply, and in the medical sector).

Last, but not least, restrictions to migration and to EU mobility may have lasting effect on the functioning of the German labor market. Beyond its often controversially discussed labor market impacts, immigration from EU member states has certainly increased labor supply in Germany and, in comparison to many years ago, has led to more employees, but also to more unemployed and benefit recipients from these countries (BA 2020g). Nonetheless, it helped cushion the imminent problem of labor shortages in the German labor market. The country’s demographic challenge could thus intensify in the future.

During the lockdown, firms, universities, and the public administration adopted smart-working practices for their employees to carry on their activities. These practices are likely to continue if their impact on workers’ productivity is not negative; this clearly depends on whether workers adapt to the new technologies and on the type of jobs performed, e.g. the frequency of interactions with other people. According to Boeri et al. (2020), jobs that can be carried out remotely are only a small fraction of all jobs, i.e. 24%. This share however could be lower if some essential sectors, such as schools and childcare, do not resume their activities.

A key challenge for policy makers then becomes to get people back to work without putting their health at risk. The question is then to mitigate the work-security tradeoff by identifying sectors of the economy that have the lowest levels of exposure to the virus, physical proximity and demographic characteristics of their workforce (Barbieri et al. 2020). Still, the proportion of safe jobs in Italy remains below 50%.

If a large share of the workforce could not go back to work, firms may increase investments in automation or reorganize production lines in order to continue their activities. While robots are generally perceived by workers as a threat for their jobs, they may help preserving labor by allowing firm to expand their production (Boeri et al. 2020).

1. https://voxeu.org/article/mitigating-work-security-trade
2. https://voxeu.org/article/covid-19-workerss-exposure-risk-and-lockdown

The response of the government during this unprecedented crisis has also been unprecedented in terms of the speed and breadth of the interventions. Perhaps as a result, the consequences for employment in persons in the affected sectors and other sectors so far appear relatively mild, see above. We appear to be approaching the end of the pandemic when it comes to its effects on the labour market, though uncertainty remains. We have seen an acceleration in working from home, which is also expected to remain at least in part after the coronapandemic, and a more rapid adoption of technologies to collaborate and work online. Furthermore, online shops are likely to get a boost, as they did in Asia after the 2003 outbreak of SARS. More difficult to gauge are the long-term effects. An optimistic view is that this was a prototypical external shock, not due to an imbalance in the system, which suggests that we may largely return to the growth path from before the COVID-19 eventually.

1. Working from home is expected to increase from on average 4 hours per week before the coronapandemic, to on average 8 hours per week after the coropandemic (it peaked at on average 14.6 hours per week during the first lockdown), with the largest increase in sectors where remote working was already commonplace, see Jongen et al. (2021).
2. See: https://www.cnbc.com/2020/03/26/chinas-2002-2003-sars-outbreak-helped-alibaba-become-e-commerce-giant.html.
3. See: Krugman (2020).

The simplified layoff rules, although common in other European countries, were the most important and innovative policy measure. The main concern reported by the employers was the administrative and bureaucratic burden, despite the procedures being “simplified”, which implied additional costs and uncertainty regarding the eligibility conditions and the time frame to get the support.

Local authorities have also tried to ameliorate the conditions of their businesses and citizens. For example, some municipalities have exempted business from fees, others have changed regulations to allow business to operate in wider outdoor areas. We are also observing a fast digitalization of the economy. Besides tele-work and tele-school, actions are being taken to support local producers and businesses and platforms are being created to ease the communication between producers and consumers. Since local and family businesses can be an important source of support for the economy, any strategy that helps these firms to survive during the crisis are welcome. Some sectors and firms adjusted quickly, the textile sector and some tech firms are now producing all sorts of gear needed to tackle this disease (protective gear, ventilators, etc). Some firms producing canned food and cereals and its derivatives (pasta, flour) have more than tripled their production. Will these expanding sectors compensate for all other losses? The future will tell.

Most of our economic activity relies on manufacturing and services. It is possible that some change may happen in some services, e.g., employers may be less reluctant to allow working from home in some sectors and workers may be more open to new work practices. Over this crisis, it has also become apparent that long supply chains may be a problem in particular when the world shuts its doors. Will this suffice to induce structural change in what we do and how we do it? We will see.

As of the second trimester of 2020, forecasts predict a sharp decrease in Portuguese exports, following the global economic downturn. This shock will mainly affect export manufacturing branches, in particular Metal working, Automotive components industry, and Textiles, clothing, leather and footwear sectors, that showed an impressive recent export performance, not only due to quality improvements but also due to cost competitiveness, with export prices relative to Portugal’s competitors depreciating by around 6% since 2009 (OECD, 2019). The reallocation of global value chains can benefit these industries, as they compete closely with eastern Asia producers. On the other hand, since Portugal is a small open economy, any significant increase in barriers to international trade can reverse the export growth to non-European countries.

In the third quarter pf 2020, exports and imports of goods decreased by 3.3% and 13.8% respectively compared to the same quarter in 2019. Food and beverage products was the only major category which recorded, from January to September 2020, an increase compared to the same period in previous year.

1. https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_oui=415205646&DESTAQUESmodo=2

This seems to be too early to evaluate, but there are some discernible developments already:

• Whereas the policy innovation is rather incremental than revolutionary, temporary Kurzarbeit has been introduced as a novel instrument. The legislative process has been started to enact it as a permanent measure; on October 21, 2020, it was approved by the government and it is now going to be proposed to the Parliament.
• One of the key questions is how the automotive sector in Slovakia will adapt to the shock and also the overall push on further greening of its production. One scenario may be that Slovak factories will in fact increase their production of cheap combustion-engine cars, satiating the increased demand for such car by the crisis-stricken population, whereas the factories in the home countries of the mother companies (VW, KIA, PSA, Jaguar – Land Rover) will innovate and produce electric cars. This poses risks for the long run, especially if state-aid in home countries is conditional on the production of electric cars and related supplies staying in home countries for a long time.
• The second wave hit Slovakia and it main trading partners in Autumn 2020. Slovakia gradually restricted social contact in September and October, and implemented, as the first country in the world, a mass testing of its entire population with antibody tests on October 31 and November 1, 2020.

As previously mentioned, the main innovation in the context of the Spanish labor market has been the government’s decision to favor the use of ERTEs, thereby minimizing dismissals. The promotion of measures for country-wide internal workforce reductions is a new policy that has not been adopted in previous crisis and that has been quite successful. The adoption of an unconditional basic income as an alternative to other social welfare measures were discussed at the beginning of the crisis, and as previously explained, a new minimum income scheme was adopted during the second half of 2020 covering the needs of those in situation of relative poverty.

Figure 6 illustrates how the number of noticed workers and workers covered by the short- time work program were distributed across industries during the early onset of the crisis. The patterns are, however, very similar if we extend the study period. Layoff notifications are highest in hotels and restaurants, followed by administrative services. Short-time work on the other hand, is used most in manufacturing followed by wholesale and retail trade. The difference in the prevalence of layoffs vs. short-time work is interesting, as it could serve as a measure of the willingness to hoard labor in anticipation of future business opportunities. With this interpretation in mind, it seems as if restaurants and hotels are much less willing to hoard labor than employers in the manufacturing sector where much of the (early stage) disturbances appear to be in the form of supply-chain disturbances.

Hensvik et al. (2020) provide a more detailed documentation of the differential labor demand response by industries and occupations as measured by vacancy inflows. They show that while the negative shock has a clear impact on all industries, some industries are substantially more affected than others. As with the figure discussed above, they document substantially larger drops in industries where social-distancing measures are likely to bind, such as hotels and restaurants, entertainment and retail trade. The impact is much more moderate in the health and education sector, in real estate and in public administration and defense. A similar picture emerges in their analysis of vacancies by occupations. Among the ten occupations with the largest decrease in vacancy inflow, they find waiters and bar tenders, dentists, and fast-food workers. On the other extreme, they show that the demand for journalists and health care specialists remain relatively resilient.

Overall, it seems plausible that the distribution of the shock speeds up ongoing structural transformation. The large impact in retail is likely to be associated with a move towards online distribution of these goods, a process that was al- ready ongoing but at a slower pace before the crisis. Much of this (pre-crisis) transformation appears to be a within-industry phenomenon which is much more visible in bankruptcy statistics than in overall employment trends, at least within broad industry categories. In retail, the rate of layoffs due to bankruptcies grew by 50 percent between 2018 and 2019 (from 2,000 to 3,000 workers) suggesting that the structural change was ongoing already before the current crisis. But the pace, as measured in the growth rate of bankruptcies, increased five-fold when the crisis hit; bankruptcies grew by 250 percent from March 2019 to March 2020 (from 370 to 937 workers). From a labor market perspective, this is both good and bad news. It is good news in the sense that many of the businesses that are failing at the moment are likely to be have been unsustainable in the long run even without the current shock. It is bad news in the sense that an accelerated pace of job destruction in weak industries may make it very hard for laid-off workers to find new employment.

It should also be noted that it is likely that several of other service-industries (personal services, tourism industry, etc.) that are hit very hard may be the jobs of the future for low skilled workers. The reason is that many of these jobs involve close human interactions, which makes them harder to automate, but also more sensitive to recommendations about social distancing.

On the flip-side of this process, we see signs of encouraging supply-side adjustments. As an example, there has been a 30 percent increase in applications of prospective students to University nursing programs, which is very good news as this is a profession where the lack of skilled workers is particularly predominant. Similarly, Hensvik et al. (2020) find that job-seekers searching online on Sweden’s largest online job board respond to the crisis by redirecting their search efforts towards vacancies from the more resilient occupations.

1. See e.g. Riksbank (2020).
2. We see the same rate of increase between February 2019 and February 2020.
3. Data is from scb.se. We do not see a corresponding pre-trend in other hard-hit industries such as hotels and restaurants and wholesale.
4. Applications closed on April 15. 1st option applications increased from 9,400 to 12,200. Data are from the national admissions office uhr.se.

It is too early to identify clear trends of (structural) changes in employment so far. I expect that the extensive use of the STW scheme in Switzerland will slow down the speed of change caused by this crisis. STW provides the firms more time to assess their situation and business perspectives and to wait to decide on potential changes in the composition of their workforce.

There are some, currently rather anecdotal, signs indicating possible (accelerated) structural changes. The air transportation sector as well as tourism operators expect lower client flows for several years to come. It is thus probable that these industries will reduce hiring and employment for a longer time. In the case of tourism this will affect many short-term contracts and seasonal positions at a first stage and then possibly more ‘structural’ positions in a second stage. Given the rising awareness of the importance and valuation of health-related occupations, I would expect that the already ongoing discussion about shortages in this area will become more salient. The political intention to promote and invest in health-related occupations may increase. A current decision in the parliament to invest in education in nursing tends to support this prediction. Next year a more pronounced proposal on this issue will come to a vote – this will document to which degree the willingness to invest in health-related occupations really increased.

Furthermore, I would expect that the currently massive increase in use of online tools and services will have a sustainable impact on the labor market. Switzerland and its workforce are comparably well equipped with internet and computing infrastructure and related skills. This supports my expectation that this unintended ‘online experiment’ which we are running currently will indeed move the use of online services to a permanently higher level. This would have positive impacts on labor demand in jobs related to online services, including logistics. It opens the door as well to new innovations through creating new online services. I also think it will accelerate the digital transition in how we search for and match jobs. Groups of employees and ages who were not yet that familiar with operating all the exchanges on the labor market digitally were now suddenly included in this transition wave. I think quite many of such immediate transitions of the functioning of the labor market towards online operations will remain in use after the crisis. Notably because many operators – firms, recruiters, public employment services – are now driven into (additionally) investing in new online processes and platform solutions.

First discussions on reshoring some activities back to Switzerland have appeared. The current focus is mostly on ensuring the local availability and production of “essential goods” in crisis periods – notably goods related to health and hygiene. For example, a broad set of firms have begun producing face masks and developing new technologies to improve these masks. Also, the discussion about ensuring local (Swiss or European) production of key (components of) pharmaceuticals has been fueled. One of the arising promising covid vaccines (by Moderna) will go into large-scale production (and export) in Switzerland in a new dedicated production facility in the Canton of Valais. Switzerland is in principle in a good position for the reshoring of such mentioned products, because of the existence of a highly competitive pharmaceutical industry and a specialized textile technology industry in the country. Clearly, all these plans of reshoring will be grounded in heavily automated production strategies. This is the only approach how a high wage country like Switzerland can reshore comparably low-priced products. The country has a high potential for reshoring production through accelerated automation due to its highly developed tech industries and universities. Such structural developments, if they are really boosted by the crisis at the end, will mostly generate additional demand for high skilled labor. Thus, permanent investment in skill development within the labor force will be essential.

It is expected an acceleration of the pre-crisis trend in shifting a share of the usual work schedule to working from home. As several current studies point out there was already a willingness-to-pay for job security among self-employed workers which were willing to sacrifice part of their income in order to access the benefits of the social safety net (Blundell and Machin, 2020; Boeri, Giupponi, Krueger and Machin, 2020). This preference will likely be intensified now that a significant proportion of workers in alternative work arrangements are suffering significant economic hardship. In the terms of structural changes in production technology, one expects a hastening in adoption of automation processes in production in order to circumvent the reliance on in-workplace presence. A degree of reorganization and reallocation of global value chain downstream production is likely to take place as consequence of firms experience during this crisis. In the UK for example, 20.5% of importing businesses declared that they completely stopped importing materials, goods or services during the outbreak. Of those businesses continuing to import 60.4% has reduced their importing (62.5% for manufacturing). This shock can push firms to decrease dependency on single geographic-centric suppliers, which in turn can have the potential to benefit labour market effects for domestic workers and closer trade partnering economies. The shifts in global value chains will likely to prioritise resilience and responsiveness over low-cost, centralised production. When asked about what type of support would help their importing challenges, 15.4% of businesses whose importing has suffered from the current crisis state support in finding new alternative supply chains as beneficial. It is hard to disentangle if firms’ future decisions regarding their downstream production will mainly be driven by Brexit or the COVID crisis, although the changes due to Brexit are heavily dependent on the future trade deals. Also, we expect to see further wage stagnation particularly with some sectors affected (passenger transport; accommodation and food; travel) being considerably restricted even in the medium-run.

1. Importing business is defined as having imported in the last 12 months
2. The effects were felt by exporter firm as well. 20.1% completely stopped their exporting during the outbreak, of those who did not 73.5% have reduced their exports.

By the end of 2021, all economic indicators pointed to a tight labor market and major programs enacted during the pandemic to assist unemployed workers and help employers keep workers on their payrolls had expired. Yet, at the time of this writing, the new omicron variant was exploding in the United States, with new daily confirmed cases in the hundreds of thousands and daily deaths exceeding a thousand. Even though the new variant appears less virulent than earlier ones, it is far more contagious and the surge in infections is threatening, once again, to overwhelm hospitals and disrupt businesses.

Federal and state policy responses to this wave of infections are likely to substantially differ from earlier ones, however. Mandatory business closures imposed in most states, although effective in stemming the spread of the virus, were unpopular among some segments of the population and led to widespread protests. Furthermore, in recent months, the rate of inflation has been higher than at any time since the early 1980s. Although many economists see the current high-inflation situation as temporary and rooted in in global supply chain disruptions, others question the transitory nature of the current inflation and argue that high government spending during the pandemic in the form of generous unemployment benefits and stimulus checks is partly to blame.

1. https://www.npr.org/2022/01/04/1070218466/1-million-us-covid-cases-omicron-surge?t=1642019182077
2. https://www.wsj.com/articles/when-it-comes-to-inflation-im-still-on-team-transitory-price-index-pce-goods-supply-chain-logistics-federal-reserve-interest-rates-11640807029?mod=itp_wsj&mod=djemITP_h
3. https://www.brookings.edu/blog/up-front/2021/11/16/what-does-current-inflation-tell-us-about-the-future/
4. https://www.forbes.com/advisor/investing/why-is-inflation-rising-right-now/