What would inclusive economic recovery from COVID 19 look like? A - PowerPoint PPT Presentation

What would inclusive economic recovery from COVID 19 look like? A labour market perspective Jeff Borland University of Melbourne Presentation to SVA webinar, May 7 2020

1] Outline • 1] The impact of COVID‐19 on economic activity • 2] What do we know so far about who is being affected? • 3] What will economic recovery look like? • 4] Making recovery inclusive – Policy ideas

2] The impact on economic activity • Two main drivers of decrease in output and employment (and hence determinants of the speed and extent of recovery): • 1] Direct ‐ Health related: Government mandated business closures; and decreases in business opening and consumer spending due to fear of contracting COVID19; • 2] Indirect ‐ a] Decrease in consumer spending (especially discretionary) due to decrease in income and/or wealth and uncertainty; and b] Decrease in business investment due to lowered expectations of profitability.

3] What do we know so far about who is being affected? • Between March 14 and April 18: • 7.5% of total jobs lost (8.2% of wages) • Main losses occur from March 21 to April 4 • (Major shutdowns on March 24; JobKeeper announced on March 30)

3] What do we know so far about who is being affected? 110 105 100 95 Index (100 = March 14) 90 85 80 75 70 65 60 14‐Mar 21‐Mar 28‐Mar 4‐Apr 11‐Apr 18‐Apr Week ending All

3] What do we know so far about who is being affected? • Between March 14 and April 18: • 7.5% of total jobs lost (8.2% of wages) • Main losses occur from March 21 to April 4 • (Major shutdowns on March 24; JobKeeper announced on March 30) • Concentrated among young and old

3] What do we know so far about who is being affected? 110 105 100 95 Index (100 = March 14) 90 85 80 75 70 65 60 14‐Mar 21‐Mar 28‐Mar 4‐Apr 11‐Apr 18‐Apr Week ending All Under 20 years 20to29 years

3] What do we know so far about who is being affected? 110 105 100 95 Index (100 = March 14) 90 85 80 75 70 65 60 14‐Mar 21‐Mar 28‐Mar 4‐Apr 11‐Apr 18‐Apr Week ending All Under 20 years 20to29 years 70 years and over

3] What do we know so far about who is being affected? i: The young • Already experiencing greater difficulty to enter the labour market post‐GFC • Will be the age group most adversely affected by this recession: • i] Because the young always are [plus Job Keeper];

3] What do we know so far about who is being affected? i: The young Change in EMP/POP rate by age, Australia, 1 2005 to 2015 Change in EMP/POP rate (ppts) (Relative to 2008/qtr3) 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ‐1 ‐2 15‐24 25‐54 ‐3 ‐4 ‐5 ‐6 ‐7

3] What do we know so far about who is being affected? i: The young Change in EMP/POP rate by age, Australia, Change in EMP/POP, 15‐24 years by education 1 2005 to 2015 attainment, Australia, 2005 to 2018 6 Change in Employment/Population Rate (Percentage Change in EMP/POP rate (ppts) (Relative to 2008/qtr3) 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 4 ‐1 2 0 ‐2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 15‐24 ‐2 points) 25‐54 ‐3 ‐4 ‐6 ‐4 ‐8 ‐5 ‐10 ‐12 ‐6 20‐24 Not FT study + Below Bachelor 20‐24 Not FT study + Bachelor degree or above ‐7

3] What do we know so far about who is being affected? i: The young • Already experiencing greater difficulty to enter the labour market post‐GFC • Will be the age group most adversely affected by this recession: • i] Because the young always are [plus Job Keeper]; • ii] Because the young work disproportionately in industries most adversely affected; and • iii] Because some older workers are likely to delay retirement to rebuild superannuation balances. • Scarring effects from entering the labour market during a downturn – Impacts on time out of employment + Job quality

3] What do we know so far about who is being affected? ii: The old • Will be adversely affected: • i] Withdrawal from the labour market due to fear of contracting COVID‐19; and • ii] Poor prospects of re‐employment if lose jobs.

3] What do we know so far about who is being affected? • Between March 14 and April 18: • 7.5% of total jobs lost (8.2% of wages) • Main losses occur from March 21 to April 4 • (Major shutdowns on March 24; JobKeeper announced on March 30) • Concentrated among young and old • Concentrated in accommodation & food services and arts & recreation services • Evenly distributed across states

3] What do we know so far about who is being affected? 110 105 100 95 Index (100 = March 14) 90 85 80 75 70 65 60 14‐Mar 21‐Mar 28‐Mar 4‐Apr 11‐Apr 18‐Apr Week ending All Retail trade Accommodation & food services Arts & recreation services

4] What will economic recovery look like? • The slides that follow are intended to provide some stylised scenarios for how recovery might proceed – Unless indicated they are not based on actual data or detailed forecasts. • Vertical axis shows decrease in employment (millions) • Horizontal axis is a timeline where, very roughly, I am thinking of the gap between time periods being about 6 months. • In all scenarios (for the present episode) the initial decrease in employment (from time 1 to 2) is ‐2m. This is roughly between my interpretation of Treasury forecast and the RBA forecast. • Snap back : This is intended to represent what would happen if health‐related restrictions were completely removed relatively quickly and economic activity was then restored to previous levels. Does not seem in any way likely. Will have continuing effects of health restrictions (eg., international travel) plus effects from lower demand.

4] What will economic recovery look like? • This recession with the usual timing of recovery : This line is making the point that – if as usually occurs – recovery takes place fairly steadily over an extended period of time, then the costs through employment losses will be substantially higher; • This recession : This line is making the point that with the lifting of health‐related restrictions we are likely to see some mini‐surges of recovery that would not usually happen. This lessens the costs of employment losses; • 1990s recession : This line (roughly) shows what happened to the actual path of employment in the recession of the 1990s (from mid‐ 1990 onwards). What is immediately evident is the scale of the present episode compared to the 1990s. Employment would need to quickly increase by a large amount for there not to be very much higher costs from employment losses in the next couple of years than happened in the 1990s.

4] What will economic recovery look like? Timeline 0 1 2 3 4 5 6 7 8 9 10 Change in employment (Millions) ‐0.5 ‐1 The path to recovery ‐1.5 ‐2 Snap‐back ‐2.5

4] What will economic recovery look like? Timeline 0 1 2 3 4 5 6 7 8 9 10 Change in employment (Millions) ‐0.5 Shaded area is a measure of the employment cost of the COVID‐19 impacts on the labour market ‐1 The path to recovery ‐1.5 ‐2 Snap‐back ‐2.5

4] What will economic recovery look like? Timeline 0 1 2 3 4 5 6 7 8 9 10 Change in employment (Millions) ‐0.5 ‐1 The path to recovery ‐1.5 ‐2 Snap‐back This recession with usual timing of recovery ‐2.5

4] What will economic recovery look like? Timeline 0 1 2 3 4 5 6 7 8 9 10 ‐0.5 Change in employment (Millions) ‐1 The path to recovery ‐1.5 ‐2 Snap‐back This recession with usual timing of recovery This recession ‐2.5

4] What will economic recovery look like? Timeline 0 1 2 3 4 5 6 7 8 9 10 ‐0.5 Change in employment (Millions) ‐1 The path to recovery ‐1.5 ‐2 Snap‐back This recession 1990s recession ‐2.5

4] Making recovery inclusive – Policy ideas • 1] Macro policy targeted at employment growth • 2] Policies for the young: • a] To make most valuable use of extra time between when would have completed schooling and entering work – i] Extra education; ii] Programs to maintain contact with the labour market; • b] To redistribute employment (Eg., avoid policies intended to promote labour force participation by other groups) • 3] Policies for older workers: • Assistance to re‐enter the labour market built around the circumstances of individuals – especially their existing skills, capacity to develop new skills and their geographic location.

4] Making recovery inclusive – Policy ideas • 4] The social safety net: • For working age population, income and well‐being depends on: • What happens when in work? • What happens when out of work? • The idea of a safety net: • i] Minimum standards of income when in/out of work (Eg., JobSeeker); • ii] Conditions of employment (Eg., casual employees); and • iii] Services provided to job seekers (Eg., NES 2020).