The unemployment pandemic

22 of June 2020
Mauren esquivel

Jaime García, CLACDS / INCAE Researcher and Project Director of the Social Progress Index

June 22, 2020

The Coronavirus has come to deteriorate the standard of living of billions of people in the world; and of course, not only do you have to think about the infected, who are already counted in millones; or the hundreds of thousands of deaths. If not, also the millions of families that are seeing their income reduced, either due to the decrease in their economic activities, or due to unemployment and the impossibility of getting a new job opportunity. 

And is that the economic outlook is not very encouraging, the World Bank reassessed the economic impacts of the pandemic; and the results, especially for our region, are not optimistic, since the fall in the Gross Domestic Product (GDP) is expected to be -7.2% in Latin America, with a decrease of 8.1% in GDP per capita. Latin America will be the region most affected by the economic impact of the pandemic. If compared to the latest recessionsIn the great recession of 2009, the region's GDP fell by -1.8%, and in the crisis of the 80s, in 1982 there was a fall of -0.5%, while, in 1983, the economy contracted - 2.52%. In the words of the ECLACWe are facing the worst economic crisis in the modern history of Latin America, a fall that was not seen since the period from 1914 to 1930.

This deterioration in economic activity has a direct impact on people's employment conditions, reducing working hours, affecting working conditions, encouraging informal employment, or increasing unemployment. Regarding the latter, the ECLAC expects the region's unemployment rate to rise to 11.5%, with 37.7 million people out of work; an increase of 11.6 million over the previous year. Although of course, the impact is different between economic activities, since some have been more affected by the pandemic than others, for example, tourism is practically stopped worldwide, not so food production.

La International Labor Organization (ILO) has classified economic activities according to the levels of impact they have due to the pandemic. In this sense, the ILO estimates that the activities of accommodation, food preparation, manufacturing, wholesale and retail trade and real estate, are having high effects on their production, considerably increasing unemployment, since they are labor-intensive sectors , which employ millions of people with low wages, and in general with low levels of qualification, particularly in accommodation, food and retail services.

Source: ILO Observatory: COVID-19 and the world of work. Second edition.

Highly affected economic activities represent 37.4% of world employment; but in Latin America that participation rises to 42.4%. And if the employees in medium-high risk activities are considered, the percentage is 16.5%; In other words, more than half of the region's workforce is in activities with severe effects as a result of the pandemic. There are also differences between countries, since in El Salvador the proportion of employed persons in highly affected sectors is 46.6%, in Honduras it is 36.9%, in Guatemala it is 34.4%, in Costa Rica it is 32.7% and in Panama it is 31%. In absolute numbers, for the total of these 5 countries in the region, we are talking about 6,514,567 people at risk of decreasing or losing their income.

Source: ILO Observatory: COVID-19 and the world of work. Second edition.

And just as the Coronavirus is testing countries' health systems, the economic crisis resulting from the pandemic will test the ability of economies to generate jobs. In this sense, if we analyze the performance of the Central American countries during the 3st century, the results are very contrasting, since while Guatemala has maintained low unemployment rates close to 6.06%; Costa Rica has seen a constant deterioration in this indicator, going from an average of 2000% in the 2004-9.44 period, to a rate of 5% in the last XNUMX years. And your latest unemployment figure, recently posted, shows a rate of 15.7% the highest in the last 30 years.

Source: Own calculations with data from World Bank.

In order for our countries to reduce the economic and social costs of the pandemic crisis, projects and strategies that build a more solid, transparent and efficient institutional framework will have to be implemented. Take advantage of sudden digitization to which the pandemic forced us and reduce business opening times, public service procedures, create one-stop shops to facilitate construction and interaction between citizens and local governments. Interventions must be promoted based on public-private alliances, since it is clear that it is the companies that create prosperity and jobs, but that it is the government that facilitates the business environment. In addition, it is necessary to implement a rehabilitation that promotes the competitiveness of the countries in the short and medium term, that allows to bring prosperity to rural areas, and that generates employment for women and young people, reducing digital gaps and increasing access to financial markets.

In other words, an agenda of competitiveness and social progress needs to be put into action for a rapid and inclusive recovery. If these types of changes and strategies are not implemented, the modest progress that the region has achieved in recent years run the risk not only of stopping, but of reverse. Already the World Bank has warned of an increase in poverty at the global level as a result of the pandemic, affecting the global trend of reducing extreme poverty. And today, in the middle of the “new normal"Still trying to learn to live with the virus, we have to begin to flatten the unemployment curve and get back on the road to economic growth, this time focused on building a more resilient economy and society. But only the most disciplined countries and societies that manage to comprehensively address health needs, and social and economic needs, from a macro level but also from the behavior of each individual, will be able to minimize the impacts of the current crisis .