The global economy and labour markets: Consequences of Covid-19

Menna Khaled, Friday 19 Feb 2021

The slowdown of global growth, decline in international flows of trade, underemployment, and decline in the labour force are also impacting Egypt’s prosperity

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‘The spread of the Covid-19 across borders has hit the economies of countries worldwide due to their interconnectedness and effects of globalisation’

“I work as a simultaneous interpreter using six language combinations, and my job is usually working for international conferences or accompanying business visits to the region. But with airport closures and conference cancellations as a result of the lockdown and travel bans, I have lost 95 per cent of my work,” said a translator living in the UAE.

The spread of the Covid-19 across borders has hit the economies of countries worldwide due to their interconnectedness and effects of globalisation, becoming both a global health and economic crisis. It has disrupted supply and demand chains, with the long periods of lockdown introduced to halt the spread of the virus, labour reductions, business closures, and limited working hours all reducing household incomes and demand for goods and services.

GDP and foreign direct investment (FDI) have gone down on a global level. “The Covid-19 pandemic has seriously wounded the world economy, with serious consequences for everyone,” UN Conference on Trade and Development (UNCTAD) Secretary-General Mukhisa Kituyi said.

The suspension of imports and exports as a result of the slowdown in international trade and the airlines’ halting their services as a result of falling passenger numbers have had negative impacts on the economies of many countries. According to the International Monetary Fund (IMF), the world economy is experiencing the worst recession since the Great Depression in the 1930s. “The cumulative loss to global GDP in 2020 and 2021 from the pandemic could be around $9 trillion, or greater than the economies of Japan and Germany combined,” it commented.

Every country is likely to experience long-lasting impacts of the crisis despite their mitigation and containment strategies, and some of the wealthiest are facing very high rates of Covid-19 infections, battling the spread of the virus and revealing the drawbacks of national healthcare systems. According to the John Hopkins University in the US, the United States, India, Brazil, Russia, the United Kingdom, France, Turkey, Italy, Spain, and Germany rank as having the highest numbers of coronavirus cases.

An UNCTAD report, “Global Investment Trends Monitor”, published last October revealed that the world’s developed economies have witnessed the biggest reduction of FDI, reaching an estimated $98 billion drop in only six months and marking a decline of 75 per cent compared to 2019. “Foreign direct investment fell by 49 per cent in the first half of 2020 compared with 2019, due to the economic fallout from Covid-19,” it said, pushing some countries to the verge of economic and healthcare system collapse.

According to the Institute of International Finance, (IIF), “global debt rose by more than $15 trillion last year to a record $277 trillion, equivalent to 365 per cent of world output.”

It is not clear when things will return to normal, and World Trade Organisation (WTO) economists are not certain of recovery in 2021. According to economics professor Ahmed Al-Safti, “the uncertainty resulting from the sudden halt is causing lots of panic in the international markets and is reflected in large losses in financial markets worldwide.”

Another UNCTAD publication, “The Impact of the Covid-19 Pandemic on Trade and Development: Transitioning to a New Normal”, projects that world income will continue to be below the level of before the pandemic for some time, with increases in unemployment a global concern.

Globalisation has accelerated the spread of the virus, and in response states have adopted emergency measures not only to halt people’s movements but also to slow the movement of goods and services on the national and international levels. The resulting economic situation poses threats to the livelihoods of millions on top of the suffering created by the disease itself.

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LABOUR MARKETS

Leading to the deaths of millions of people worldwide, Covid-19 has also led to the unemployment of millions.

The International Labour Organisation (ILO) has said that the economic and labour crisis created by Covid-19 could lead to the unemployment of 25 million people. The pandemic has resulted in businesses closures and job losses worldwide, with World Bank statistics revealing that unemployment in the total world labour force has increased from 5.395 to 5.42 per cent.

The US Labour Department has reported that “Americans’ initial claims for unemployment totaled 922,072 in the week ending January 2, an increase of 77,400 (or 9.2 per cent) from the previous week,” for example.

The rising number of Covid-19 cases and the continuing containment measures are having severe impacts on the labour market in many countries. Some states are experiencing a rising number of newly recorded cases, despite lockdown measures and vaccine deployments. The Office for National Statistics in the UK, for example, has said that “the percentage of people testing positive for the coronavirus in England has continued to increase.”

It said that “infections in London, as well as in England and in the UK as a whole, are estimated to be growing by up to six per cent each day. London has the highest percentage of Covid cases, reaching one in 30 people by 2 January.”

With the lockdowns, quarantines, and containment and safety measures, government measures have converted the world into an almost virtual one, in order to keep households afloat, minimise job losses and protect people’s jobs and futures. The sudden shift to remote environments has had dire consequences for a lot of people.

“I know more than 50 people who have lost their jobs. RSI (remote simultaneous interpretation) was an option for me — but the pay was reduced by 50 per cent and I lost many advantage as conference organisers have opted for engaging interpreters in European countries instead,” the UAE interpreter said.

Chandni Rakhra, a 28-year-old freelance designer living in London, said that “I am unable to do my part-time job as it requires me to be face-to-face with the public. I have not been working, but being paid 80 per cent of my contracted hours instead. But this is a very low amount, as the job was only part time in the first place.”

Much of the global workforce is continuing to work remotely, threatening those who work in both the private and informal sector in non-proportional ways.

Despite bold efforts on the part of many governments, unemployment and poverty have increased. According to reports released by the World Bank and UNCTAD, “global poverty is on the rise for the first time since the 1998 Asian financial crisis.” An UNCTAD report warned that “a viable vaccine will not halt the spread of the economic damage, which will be felt long into the future, especially by the poorest and most vulnerable.”

As the pandemic continues, more and more people are finding it harder to obtain or to change jobs. There has been a rash of frozen and halted hiring by companies and enterprises, and people have lost their jobs or had their workings hours reduced. According to the Organisation for Economic Cooperation and Development (OECD), “the impact on jobs has been 10 times bigger than that of the global financial crisis” in 2008. The Covid-19 pandemic has triggered one of the worst jobs crises since the Great Depression. There is a real danger that the crisis will increase poverty and widen inequalities, with the impact felt for years to come.”

In December, the ILO Labour Overview for Latin America and the Caribbean said that “some 30 million people are unemployed, and 23 million will have left the workforce due to the lack of opportunities. In 2021, employment will be in ‘intensive care’, and the indicators could worsen.”

Despite the fact that the economic consequences of Covid-19 have not fallen with equal severity, all states and regions remain vulnerable to its repercussions.

“The pandemic has impacted my job. Until August 2020, I was in the final year of my Masters, and I was also on furlough from my retail job. Even though this gave me some time to focus on my university work, I had a lot of money worries and health worries,” one affected young person said.

According to ILO updated estimates in September 2020, “labour income losses suggest a global decline of 10.7 per cent during the first three-quarters of 2020, compared with the corresponding period in 2019, while labour income losses are highest in middle-income countries.”

Young people have been hit severely by the crisis, especially recent graduates seeking entry level jobs. They are confronting a very tough and competitive labour market, affecting their careers and futures. According to Eurostat, the EU statistics agency, “in the second quarter of 2020, the share of people aged 15-74 facing a potential need for employment amounted to 14.6 per cent of the extended labour force, 1.7 percentage point higher compared with the last quarter of 2019.”

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EGYPT’S JOB MARKET

“The pandemic has had a direct impact on my business, which has almost reached the point of closure. Income has become almost non-existent as a result of people’s adoption of safety measures and fears of being infected with the virus,” said one café owner in New Cairo.

The slowdown of global growth, decline in international flows of trade, underemployment, and decline in the labour force are impacting Egypt’s prosperity.

According to a report published by the International Food Policy Research Institute (IFPRI), “Covid-19 could reduce national GDP by between 0.7 and 0.8 per cent (LE36 to LE41 billion) for each month that the global crisis continues. Similarly, household consumption and expenditure are estimated to decline on average by between LE153 and LE180 per person per month.”

The World Bank also said last October that Egypt’s debt is estimated to increase from 90.2 per cent of GDP in 2019 to 93.8 per cent by the end of 2020.

A report published by the Ministry of Planning and economic development and IFPRI said that mounting job losses are especially evident in sectors that have been highly impacted by supply and demand fluctuations as a result of Covid-19, such as “hotels and restaurants, sports and recreational activities, household workers, and industry.”

The safety measures adopted to halt the spread of the virus have made it worse for employees working in activities such as cafés and restaurants. “As a result of the loss of income, the numbers of workers had to be reduced due to my inability to pay salaries,” said the café owner in New Cairo.

The consequences of the pandemic and the hardening economic situation are thus impacting the livelihoods of millions, not only on a national level but also on an international one. A survey conducted by the London School of Economics (LSE) on 10,000 people in the UK during September and October 2020 showed that more than one person in 10 between the ages of 16 and 25 had lost his or her job.

Egypt’s Central Agency for Public Mobilisation and Statistics (CAMPAS) declared that Egypt’s unemployment rate had reached 9.6 per cent in the second quarter of 2020, leading to the loss of 2.7 million jobs as a result of the Covid-19 pandemic. The World Bank reported that most of the employment losses were in the retail and wholesale trade, manufacturing, tourism, transport and construction sectors, especially among informal workers.

The tourism sector has been particularly harshly impacted by the pandemic. This represents 10 per cent of total employment and is the third-largest source of revenue after remittances and non-oil exports. Tourism is a vital sector for Egypt’s GDP, and it has been sharply declining, impacting the livelihoods of workers in the sector and the country as a whole. According to the OECD, “the government estimates at around $1 billion the monthly loss of income from tourism, which is a $12.5 billion a year industry and contributes 12 per cent of GDP.”

“My income has decreased with the sharp decline in tourism. I have had to decrease my expenditure and my use of electricity. I smoke less, and there are no more family outings or fun activities. I have lost all means of entertainment, expect watching television,” said one hotel worker in Safaga on the Red Sea.

The negative repercussions of the crisis on the tourism sector are expected to further affect at least three million people employed by the sector. “Tourism stopped from 25 March to 15 August 2020, and currently the occupancy rate in hotels does not exceed five per cent,” the hotel worker said.

“A large number of hotel workers were laid off, and all the remaining employees work only 15 days per month. Because of the lack of occupancy, all the remaining workers are also performing tasks other than those required by their positions, except for maintenance.”

According to the Tourism and Aviation Committee of the Egyptian Junior Businessmen Association, “global tourism has lost about $935 billion in revenues due to the Covid-19 pandemic, which is more than 10 times the loss suffered in 2009 because of the global economic crisis.” The number of international arrivals in the first 10 months of 2020 decreased by 72 per cent, leading to the loss of 900 million tourists between January and October that year.

“We hope that after each crisis things will go back to normal or even better, but the issue here is that this is a global crisis in which foreigners have also been impacted by the pandemic, leaving them with a minimal financial ability to travel and pay fees,” the association said.

The pandemic has impacted and will continue to impact world economies and people’s lives. There is also a great concern about how long the crisis will last. Will the world of work be able to return to normal, or will this be the new normal with a few modifications?

“I am hopeful, yet very sceptical, since in past years when things go back 10 steps, they only then go forward by one or two,” the UAE interpreter said.

*A version of this article appears in print in the 18 February , 2021 edition of Al-Ahram Weekly

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