A tailored mix of labour market and social protection policies is needed to mitigate the economic and social impacts of Covid-19, staggered along three stages of the crisis: assistance, reorganisation, and resilience building. Given the unique nature of the pandemic, the response will also hinge on taking new routes. In order to obtain evidence on the effectiveness of new or modified programmes, rigorous testing and evaluations can help improve social protection and jobs policies.
Covid-19 has affected economies, firms and workers all over the world. What started out as a health crisis soon developed into a pandemic with severe economic and labour market impacts worldwide. By August 2020, around 70% of countries had mobility limitations in place that affected businesses and livelihoods.[1] The global economy has been hit very hard, surpassing previous crises (ILO, 2020)[2]: working hours decreased, unemployment rates soared, incomes were lost, and businesses closed. Economic impacts are particularly severe in low- and middle-income countries (LMICs) for vulnerable groups like informal workers, women and youth, and also for small and medium-sized enterprises (SMEs).
Early assistance measures should ease the immediate impact of the public health measures for otherwise competitive firms by reducing liquidity constraints and retaining employment levels. Liquidity injections should be designed to enable crisis-affected firms to continue paying workers and their access to financial means should be eased by issuing (and subsidising) new lines of credit. For informal firms, microfinance institutions can be used to provide liquidity. Wage subsidies and temporary reductions of other labour costs such as social security contributions have proved to be successful in averting job losses. Reaching the most vulnerable firms and workers is challenging in LMIC contexts, particularly in rural areas. Digital solutions such as digital payment systems using mobile phones or digital registries can help and should be explored if feasible.
Workers who lose their jobs need income protection to see their livelihoods secured. Among the most widely used instruments for quickly helping households in crisis are social assistance programmes, most prominently cash transfers to households. By September 2020, 156 of 188 countries had planned, undertook or ended a crisis-related cash transfer programme.[3] There is a large evidence base demonstrating the positive effects of cash transfers on livelihoods, such as reducing poverty, improving health, connecting people to jobs, helping to manage economic and climatic crises, and generating economic multipliers for consumption smoothing. [4]
Emergency policies need to be replaced with tailored support for workers and firms in the phases of reorganisation and resilience building. Programmes should not inject liquidity into a broad range of firms but rather into those that are viable and innovative as they adapt to the new normal. Here a focus should be on green jobs or jobs in support of sustainable structural transformation. Furthermore, in low and lower-to-middle-income countries household enterprises and micro-enterprises would benefit from specially targeted interventions as most workers are employed in such arrangements. Existing microfinance networks could provide a way of channelling such funds to these enterprises.
Active labour market programmes can support the adaptation of policies to the shifting nature of the crisis from easing the initial impact to the restructuring phase. Information from past labour market programmes can be used to devise new ones, adapted to a medium- and longer-term perspective. Public works, for example, played an important part in the recovery from previous shocks like the financial crisis of 2008–10.[5] Given the nature of Covid-19, adaptations to labour-intensive public works are nonetheless needed. Programmes must ensure that participants maintain physical distancing and wear protective equipment. Investing in skills and training, especially with a focus on digital solutions, can be a viable long-term investment. Investments in skills are another key policy intervention during an economic crisis as they are typically more effective [6] and opportunity costs of investing into reskilling and training are lower.
Extending the coverage to vulnerable populations is crucial for future social protection programmes. In LMICs, the scope and scale of worker and social protection measures need to be expanded for higher resilience in future crises. This is true for vulnerable workers, such as low-income, informal and low-skilled workers, as well as women. At the same time, a new generation of young jobseekers – the so-called “Covid-19” generation – should be another main target for policies to avoid long-term “scarring effects”. [7]
A tailored mix of labour market and social protection policies is needed to mitigate the economic and social impacts of Covid-19, staggered along three stages of the crisis: assistance, reorganisation, and resilience building. In order to obtain evidence on the effectiveness of new or modified programmes, rigorous testing and evaluations can help improve social protection and jobs policies. [8]
This article is an abridged version of a policy brief by Jochen Kluve (KfW), Jörg Langbein (KfW) and Michael Weber (World Bank), published on behalf of BMZ and DEval on October 2, 2020.
[1] Source: University of Oxford and Blavatnik School of Government (2020). Coronavirus Government Response Tracker. www.bsg.ox.ac.uk/research/research-projects/coronavirus-government-response-tracker (accessed 25. August 2020).
[2] Source: ILO (2020), ILO Monitor: "Covid-19 and the world of work", ILO Briefing Note, 6th ed, International Labour Organization, Geneva, www.ilo.org/wcmsp5/groups/public/@dgreports/@dcomm/documents/briefingnote/wcms_755910.pdf (accessed 20. September 2020).
[3] Source: Gentilini, U., M. Almenfi, P. Dale, A.V. Lopez and U. Zafar (2020). Social Protection and Jobs Response to Covid-19: A real time review of country measures. COVID-19 Living Paper. Version 13. 18. September. World Bank, Washington, DC.
[4] For example: Garcia, S. and J. Hill (2010). The impact of conditional cash transfers and health: unpacking the causal chain. Journal of Development Effectiveness, 2(1): 117–137. or: Kabeer, N. and H. Waddington (2015). Economic impacts of conditional cash transfer programmes: a systematic review and meta-analysis. Journal of Development Effectiveness, 7(3): 290–303.
[5] Source: Azam, M., C. Ferré and M.I. Ajwad (2013). Can public works programs mitigate the impact of crises in Europe? The case of Latvia. IZA Journal of European Labor Studies, 2(1): 10.
[6] Source: Card, D., J. Kluve and A. Weber (2018). What works? A meta analysis of recent active labor market program evaluations. Journal of the European Economic Association, 16(3): 894–931.
[7] For example: Gregg, P. and E. Tominey (2005). The wage scar from male youth unemployment. Labour Economics, 12(4): 487–509.
[8] Source: Haushofer, J. and C. J. Metcalf (2020). Which interventions work best in a pandemic?. Science, 368(6495): 1063–1065.
