IZA Newsroom

IZA – Institute of Labor Economics

Mark Fallak

How working-time flexibility affects workers’ productivity in a routine job

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The Covid-19 pandemic has fast-tracked the adoption of flexible work modalities by employers around the word. In particular, teleworking has proven itself as an important scheme of ensuring business continuity, increased productivity, and better work-life balance.

However, teleworking is only one form of job flexibility. It is mainly based on replacing the workplace with the home, while maintaining demanding characteristics in schedules and expected results. Also, teleworking is supported only for a limited number of jobs. Recent research estimates that the proportion of jobs that can be carried out from home are few, ranging from 6% in Ghana to 34% in the United States.

Pros and cons of flexible work arrangements

Teleworking also raises some concerns. By reducing interactions among workers and between workers and supervisors, there is a risk of reduced productivity, particularly in jobs where interactions are necessary. Similarly, working from home could increase distractions for workers. Finally, blurring the boundaries between work and home could lead to increased working hours and, consequently, increased employee stress levels and fatigue. In sum, teleworking affects productivity by modifying two key dimensions at the same time: the workplace and the working time schedule.

Other types of flexible work arrangements are related to schedule flexibility, such as being able to decide when to start and stop working, and the total time spent on the job – i.e. working part time. If workers value such arrangements, they are willing to work for lower wages in exchange for such flexibility. Alternatively, when keeping pay constant, the option of such autonomy may boost a worker’s productivity either by increasing their motivation or stimulating reciprocal behavior.

A key question regarding such flexible working arrangements is why firms do not offer them more often. A possible answer is that employers may worry that giving workers more freedom will cause them to work less or to reduce their level of effort. Some studies have demonstrated a net productivity-enhancing effect of work-schedule and workplace flexibility for non-routine tasks and jobs that require little coordination through interactions; yet productivity may decline for routine tasks. However, causal evidence is still scarce, especially with respect to work-schedule flexibility.

The findings are more mixed and the causal evidence even more limited for part-time work. Compared to other forms of flexibility, part-time workers could increase their productivity by suffering from less fatigue than their full-time colleagues or by allowing the more intensive use of capital. However, high fixed start-up costs imply that part-time workers may be less productive than their full-time counterparts, because the latter incur such costs for any number of hours worked. Moreover, part-time workers may be less committed to their career goals, and the returns on training may be lower.

Field experiment in Colombia

A recent IZA study by Marie Boltz, Bart Cockx, Ana Maria Diaz, Luz Magdalena Salas aims to provide causal evidence of the effects on productivity in a routine temporary job of two of the three flexible working arrangements described above: (1) working part-time and (2) being able to decide when to start and stop working within the work week. The researchers carried out a field experiment in Bogotá, Colombia’s capital city.

“Flexible work schemes can enhance productivity in two ways, they can either increase the attractiveness of the job such that intrinsically more productive workers self-select into it, or they incentivize workers to exert more effort or time to working,” says Marie Boltz. The authors aim to capture both sources and disentangle the effect into these components in a natural environment.

In order to capture the consequence of self-selection, the field experiment began from the moment the job ads for a three-week position as data entry operators were posted. The vacancy was advertised without reference to the contract environment. Applicants provided standard resume information and performed an online test in which they had to carry out similar data entry tasks as the job to which they were applying. This allowed the researchers to construct an ex ante measure of productivity and to disentangle the sorting effects on productivity from the ex post motivational effects.

Flexible contracts increase productivity by up to 50 percent

The findings suggest that an employer can increase a worker’s overall productivity by nearly 50 percent by offering a full-time flexible contract rather than a full-time non-flexible one. About 40 percent of this overall effect is attributed to attracting more productive workers. The remaining 60 percent is attributed to a motivational effect that is almost completely driven by the fact that full-time flexible workers take fewer breaks than those with non-flexible contracts. This results in a 10-percentage-point increase in effectiveness relative to contractual working time.

The paper also finds that part-time flexible and non-flexible contracts can enhance total productivity, but these effects are not significant at conventional levels. However, part-time workers, with or without a flexible time arrangement, spend 15 percentage points less time taking breaks in the workplace relative to contractual time than the reference group, and this effect is highly significant. This does not show up in the global effect on productivity because these part-time workers make more mistakes, or are more frequently absent from work.

The authors’ finding that working-time flexibility can substantially enhance productivity in a routine data entry task is new. Prior studies have argued that flexibility is especially valuable in non-routine jobs, but that the impact on productivity in routine jobs may be negative. Another contribution to the literature is that this field experiment began during the recruitment process, which allows the researchers to jointly evaluate the total productivity effect of flexible work arrangements that is induced both by attracting more productive workers and by motivating them to exert more effort.

IZA Fellow Edward Lazear passes away

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It is with tremendous sadness that we announce the passing of Edward Lazear, Stanford University professor and winner of the 2004 IZA Prize in Labor Economics. He had been an IZA Research Fellow since 2002 and was one of the first contributors to the IZA World of Labor.

His book Personnel Economics, published in 1995, established a new field in labor economics, focused on human resource practices and incentives in organizations. He made important contributions as well in education, immigration, productivity and entrepreneurship.

A student of and intellectual successor to economist and Nobel Laureate Gary Becker, Lazear founded the Society of Labor Economists and later served as its president. He was the founding editor of the Journal of Labor Economics, and also founded the working group on Personnel Economics at the National Bureau of Economic Research.

“In a whole variety of ways, Ed was an inspiration to a whole generation of economists, including many contemporaries. His seriousness about economics has always been a beacon, reflected both in his own work and in his discussions of others’ work,” said IZA Network Director Daniel Hamermesh.

“Ed cared deeply about economics, but he did not take himself too seriously. He had a good sense of humor and was great fun to be around. Perhaps the combination of scholarly achievement and sense is what recommended Ed for so many of the positions that he held, including as Chair of the Council of Economic Advisors in the U.S. from 2007-2009. Ed Lazear was a true gentleman. He will be sorely missed by all who knew him.”

Read also the obituary from Stanford University.

Video resumes increase callback rates

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Video resumes are becoming increasingly popular and can be hosted directly on internet platforms or can be referenced through a hyperlink when uploading a resume to a potential employer. Video resumes allow job seekers to showcase their abilities beyond the capabilities of traditional paper resumes and allow prospective employers to see and hear applicants, and get a feel for how applicants present themselves.

In a recent IZA discussion paper, Charles Bellemare, Marion Goussé, Guy Lacroix and Steeve Marchand investigate the impact of using video resumes on callback rates for low to middle-skill jobs. Using a large scale field experiment, they randomly sent applications to 2021 private firms posting vacancies across the Canadian province of Québec. A subset of these applications included a link inviting firms to view a video resume. The study targeted secretary-receptionist positions advertised on standard job search engines. A professional actress was hired to personify a potential candidate in the video resumes. The researchers recorded detailed viewing activities from potential employers (number of views, duration, rewind/forward, etc.) as well as callbacks either by e-mail or voice message.

A potential downside of video resumes is that they reveal otherwise concealed information that is not to the liking of an employer, such as race, gender, obesity, or disability. To test the latter case, a subset of the applications disclosed a disability requiring the use of a wheelchair. This was achieved by filming the actress sitting in a wheelchair. The disability was mentioned explicitly in the cover letter in cases where the resumes did not mention a video. The videos used both a narrow and a wide frame, with only the latter showing the wheelchair.

The wide-frame video shows whether the applicant is sitting in a regular chair or a wheelchair.

Disabled workers benefit equally, but discrimination persists

The analysis finds that the unemployed can greatly benefit from a well-designed promotional video. More importantly, workers with a visible disability benefit just as much: Callback rates increase from 45% to 55.3% for able-bodied applicants, and from 19.9% to 27.4% for disabled applicants. Still, disabled applicants are found to be discriminated against as they are half as likely to be invited to a formal interview, even when firms are accessible for wheelchairs (an important aspect that previous studies on discrimination have not taken into account).

To the extent video resumes are beneficial to disabled applicants, they could be a cost-effective alternative to government-sponsored training and job assistance programs, which over the past decades have had limited success in helping disadvantaged individuals find employment.

Should disability be revealed in job applications?

Based on previous corresponding studies, it can be argued that hiding a disability (or any other trait firms may discriminate upon) yields higher callback rates. At first glance, the results of this study support this argument – callback rates are highest when the applicant uses a video resume without revealing a disability. However, correspondence studies capture only the first part of the recruitment process, but say very little about outcomes of follow-up job interviews on site.

Since video resumes allow prospective employers to see and hear applicants, the authors conjecture this may lead to better matches at the interview stage and increase interview performance and outcomes. This service should be all the more relevant for persons with disabilities as they face higher mobility costs to commute to work and to undertake interviews. Video resumes represent an efficient way for them to quickly identify firms willing and able to recruit and hire persons with disabilities. Moreover, they can better approach formal on-site job interviews knowing the firm they visit is aware and very likely willing to accommodate their disability.

Public funding of video resumes may pay for itself

The non-profit organization the authors partnered with for this project currently charges approximately 300$ to produce a video CV. In comparison, social welfare benefits for single adults with and without disabilities in Québec are currently 690$ and 1088$, respectively. A back-of-the-envelope calculation suggests that publicly funding the production of video resumes in the current labor market would pay for itself if video usage accelerates exits from unemployment by two weeks. This calculation ignores income taxes, which would further increase returns to funding this service.

As a pre-screening of candidates reduces search costs, the authors expect that a wide adoption of video resumes would improve labor market efficiency, which could increase demand and reduce unemployment. However, they also caution that a more widespread use may penalize non-users – or diminish the advantage over traditional applications once the novelty effect of video resumes subsides. Depending on the relative strengths of these opposing forces, the gap in callback rates found in the experiment may thus either widen or close over time.

Vacancy postings reflect trend towards working from home

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In many countries, the COVID-19 crisis led to a sharp increase in working from home. According to a Eurofound survey conducted in April, 37 percent of workers across the EU started to telework due to the pandemic. At 41 percent, Austria is among the EU countries with the largest proportion of workers who switched to remote work arrangements. A recent IZA paper by Omar Bamieh and Lennart Ziegler examines to what extent this is reflected in job ads. The project was financially supported through the IZA Coronavirus Emergency Research Thrust.

The researchers analyzed data from largest Austrian job board, which – in contrast to administrative data – shows immediate changes in labor demand during the crisis and includes information on various relevant job characteristics such as teleworking options, required work experience, and posted wages. In terms of absolute numbers, vacancy postings declined by one-third in the post-lockdown months (April through June 2020) compared to the previous year – down from 75,000 to 50,000.

Posted wage offers in the remaining job ads were 0.2 percentage points lower than before the crisis. While the initial lockdown largely affected low- and medium-educated workers, the study shows that the decrease in vacancies affected all levels of education to a similar extent.

Do new vacancy postings reflect the trend towards working from home? Indeed, for the group of higher-educated workers, references to teleworking increased by up to one-fourth compared to the month before the crisis. Given that the estimated impact persists throughout June, the authors interpret the results as an actual organizational change, which may have long-lasting effects. In line with this interpretation, they do not find any evidence of a relative increase in occupations which are commonly associated with telework.

The results thus suggest that the pandemic could accelerate the already existing shift towards home-based work. As the authors point out, some firms might have realized that telework is a feasible option and that more jobs can be done from home than was previously thought. This raises the larger question to what extent physical presence at the workplace will still be required in the years to come.

The Economics of Immigration: 2nd Edition

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The second edition of The Economics of Immigration, by Cynthia Bansak, Nicole Simpson and Madeline Zavodny, is being published by Routledge this year. All three authors have been IZA Research Fellows for many years. We asked them about the purpose and contents of the book, and the importance of IZA research in this field.

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Who should read your book?

Our textbook is geared towards undergraduate students who have taken an introductory economics course. This textbook  comprehensively covers the economics of immigration at the undergraduate level, and it is suitable both for economics students and for students studying migration in other disciplines, such as sociology and politics. The book is international in scope, with examples from all around the globe.

You obviously put a lot of work into it. What was your motivation?

We wanted to provide students with the tools needed to examine the economic impact of immigration and immigration policies. Students will develop an understanding of why and how people migrate across borders and will learn how to analyze the economic causes and effects of immigration.

Students will develop an understanding of why and how people migrate across borders.

The main objectives of the book are for students to understand the decision to migrate; to understand the impact of immigration on markets and government budgets; and to understand the consequences of immigration policies in a global context.

Tell us more about the topics covered…

Key topics include the effect of immigration on labor markets, housing markets, international trade, tax revenues, human capital accumulation, and government fiscal balances. The book also considers the impact of immigration on what firms choose to produce, and even on the ethnic diversity of restaurants and on financial markets, as well as the theory and evidence on immigrants’ economic assimilation.

The book also considers the impact of immigration on what firms choose to produce.

We have included a comparative study of immigration policies in a number of immigrant-receiving and sending countries. Finally, the book explores immigration topics that directly affect developing countries, such as remittances, brain drain, human trafficking, and rural-urban internal migration. The idea is to fully equip students with the tools needed to understand and contribute to policy debates on this controversial topic.

What’s new in the second edition?

In addition to updating time-sensitive material, we made several other changes. The second edition puts more emphasis on refugees and asylum seekers since those groups swelled in number over the 2010s. Students in many countries are interested in those groups.

We put more emphasis on refugees and asylum seekers since those groups swelled in number over the 2010s.

While many refugees and asylum seekers are not economic migrants, they nonetheless have economic effects that are important to consider. The second edition also puts more emphasis on European immigration, environmental migration, political outcomes of migration and immigrant innovation.

How important has IZA research been in this field?

There has been an explosion of research on the topic of immigration in the last few decades, much of which has been facilitated by IZA, and we have made a concerted effort to place recent findings at the center of our discussions in the book. Through its migration program area, IZA focuses research on the many dimensions of international and internal migration.

There has been an explosion of research on the topic of immigration, much of which has been facilitated by IZA.

In books, chapters, journal articles and discussion papers, IZA researchers examine adjustment among the migrants and their descendants in the destination country, the effects of immigration on both origin and destination countries, and public policies that affect migration. Our book discusses the work of many IZA researchers on this topic and makes their findings accessible and relevant to undergraduates. In fact, we cite dozens of IZA articles and working papers in the textbook.

What online resources do you provide?

The textbook is accompanied with a companion website with resources for instructors and a blog that connects students and instructors to recent events and debates related to immigration. We are developing course materials, including power points, that align with the updated version. In addition, the companion provides suggested class activities related to the book. We welcome instructors to contact us with feedback on the book and requests for updated course materials.

Coping with the COVID-19 labor market crisis: Views from the Netherlands

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In a series of IZA Newsroom interviews, renowned international labor market experts comment on how their country has been coping with the COVID-19 labor market crisis and how they expect the situation to evolve. The IZA Crisis Response Monitoring provides a detailed assessment of different policy measures in selected countries. To learn more about the Dutch experience, we asked Egbert Jongen and Paul Verstraten from the CPB Netherlands Bureau for Economic Policy Analysis to share their inside views.

How do you assess the current labor market situation in the Netherlands and the impact of government policies?

Egbert: Given the sharp drop in economic activity, we have seen a rather limited drop in employment in persons and a rather limited rise in unemployment. The unprecedented policy interventions probably played a major role in this; during the period March-May one in every three employees was working in a firm that received short-time work subsidies and a large share of self-employed claimed special benefits for self-employed. Together with other policy interventions, like tax deferrals, this has prevented a sharp drop in employment in persons and a massive surge in unemployment.

What is your outlook for the next six to twelve months?

Paul: On September 15th we published our Macro Economic Outlook 2021 in which we look towards 2021, as well as the remaining quarter of 2020. In our baseline projection the unemployment rate continues to increase to 4.3% in 2020 on average (the unemployment rate was historically low with only 2.9% in February) and to approximately 6% in 2021. The unemployment figure for 2021 is about half a percentage lower than estimated in our August projection. This is partly because the Dutch government recently decided to continue the short-time work program until July of next year. It should be noted, however, that also a much worse scenario can unfold. In our second-wave scenario, which triggers a second lockdown, the unemployment rate is projected to rise to 10% in 2021.

The Dutch government recently decided to continue the short-time work program until July of next year.

Egbert: Indeed, and we are already into a second wave, where the recent surge in cases in the Netherlands does not bode well for the coming period, ‘Winter is coming’. The government has already implemented additional restrictions over the past weeks, and put out a warning that more restrictions will follow if we do not bend the curve regarding the number of cases. The next economic forecast of the CPB, which takes these recent developments into account, will be published on the 26th of November.

What policies would be best suited to support the recovery of employment?

Egbert: Given that this is not a V-shaped recession, and some sectors may witness a permanent drop in activity (less travel to and for work, more online shopping), the focus has to shift from maintaining current less productive matches to reallocation towards more productive sectors and jobs. Indeed, so far this has been an asymmetric shock, some sectors still have a shortage of workers, like the education, health and more technical sectors. We have to make sure that workers and firms have enough incentives for reallocation, while at the same time supporting them when it comes to retraining and job search. Policy is also moving in this direction.

The focus has to shift from maintaining current less productive matches to reallocation towards more productive sectors and jobs.

Which aspects of the Dutch crisis response in do you find most remarkable?

Paul: The development of bankruptcies in the Netherlands is one of the most counterintuitive figures I have seen so far. This number has steadily decreased since April and in August we saw the lowest number in 21 years. I think this shows that the generous support measures do not only preserve firms that are hit by COVID-19 but also firms that are in economic distress for other reasons. In the next 9 months the support policies will be gradually dismantled, so it will be interesting to see how this situation will evolve.

Egbert: Next to remarkable policies, and the speed at which they were implemented, the shift from working mostly in the office to working mostly from home has also been remarkable. Working from home will probably remain much more common even after the pandemic, in general the link between where you live and where you work will become more diffuse, which opens up a lot of opportunities.

How has the COVID-19 crisis personally affected you?

Paul: Both Egbert and I work at the CPB – an independent economic institute of the Dutch government. And since our jobs are particularly well-suited for remote work, we mostly work from home. I must admit that I was quite lucky to have my vacation in February this year. So for me there was not much to cancel during the summer. I did however receive a cancellation from a conference in London. I was planning to present one of my papers there. Let’s hope things look better next year.

Egbert: In my personal life, we have been rather lucky. None of my family or close friends has been seriously ill, and me and my wife both have permanent contracts in sectors that are rather unaffected by the crisis. It has been a bit more challenging for our children, education online is (even) less fun. I especially feel for our son, finishing high school and starting student life is not the same during a pandemic. Regarding work, I enjoy working from home, and having less and shorter meetings, but the social fabric of my team and our institute is suffering from the lack of in-person interaction. Also, work has been busier than ever, making scenarios and doing ‘run-and-gun’ corona analyses, next to preparing for the analysis of the election proposals coming winter. Also at the university it has been rather busy, moving most of the teaching and exams online.

School re-openings after summer breaks in Germany did not increase SARS-CoV-2 cases

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School closures have been among the most common non-pharmaceutical interventions to slow down the spread of the novel coronavirus. According to UNESCO estimates over 60% of the world’s student population have been affected. Experts estimate the economic and social costs of school closures to reach up to US$ 15 trillion of lifetime income. Despite these costs, policymakers remain hesitant to comprehensively re-open schools. Regular media reports about local outbreaks and quarantining of school cohorts spread the fear of creating new infection hot spots in schools.

A new IZA study by Ingo Isphording, Marc Lipfert, and Nico Pestel suggests that this fear might be unwarranted – at least under certain circumstances. The researchers exploit as a “natural experiment” the schedule of staggered school summer breaks across German states to estimate the effect of the end of summer breaks on newly confirmed cases of SARS-CoV-2 infections. Methodologically, they apply a so-called event study analysis that compares the daily difference in county-level case numbers between states where summer breaks end with those states where schools are still closed and re-open later.

The figure below highlights their results. Each point on the thick black line corresponds to a change of the difference between counties in “opening” states and states that do not (yet) experience the end of summer break, relative to the first day after the end of summer break. The “flat trend” before the end of summer breaks shows that differences did not vary before school re-openings. Differences emerge only after the end of school breaks. This pattern corroborates the researchers’ assumption to actually estimating a causal effect of the end of summer breaks.

After summer breaks, relative case numbers even went down

After the end of summer breaks, relative numbers of newly confirmed case numbers gradually decrease in re-opening states relative to those not (yet) re-opening. The effect is sizeable: Three weeks after the summer break, the difference accounts for 0.55 fewer cases per 100,000 inhabitants per day – about 27 percent of a typical difference between two daily counts before the end of summer breaks.  The effect is concentrated among age groups of school-aged children and their parents. At-risk groups aged 60+ are not affected.

“This result certainly ran counter our own priors,” says Ingo Isphording. As the authors themselves, politicians and the broader public were very concerned about the school re-openings which were a common topic in media debates. The authors thus corroborated their findings with a large number of different specifications, yet in none they find a positive effect of the school re-openings on new confirmed cases.

Taking a closer look at the underlying situation the results are based on, the authors present several mechanisms that could explain the lack of the expected positive effect of the school re-openings.  School re-openings happened during a time of low overall infection rates. Schools applied strict hygiene measures, including mask wearing, teaching in small fixed groups, and rapid testing and quarantining of classes where a student or teacher has tested positive. Thus, the analyzed school re-openings were likely not the flip side of the coin of comprehensive school closures during a phase of exponential growth in case numbers in March and April. Finally, the authors argue that school re-openings increased precautions as symptomatic children were rapidly quarantined. “When the consequence of a running nose is that your kid cannot go to school for some days, you think twice of letting your kid play in closed quarters with others,” says Ingo Isphording.

The results bear implications for policymakers in countries where schools are yet to be re-opened. It shows that in a situation where schools re-open under strict hygiene measures, case numbers do not necessarily increase after school re-openings, despite large media attention to single arising cases. “200 kids in quarantine might make a good newspaper headline, but they just show that our system of containing the spread in schools actually works,” says Isphording.

Freely available rapid testing for teachers and students as well as decentralized quarantine and containment measures appear to be sufficient – in a situation of low community spread – to keep the pandemic under control and simultaneously allow for universal in-class teaching. Given the high immediate and longer-run human capital costs of school closures, the results might help to re-evaluate the cost-benefit considerations of moving back to on-site schooling, and closing schools in response to newly rising numbers. Yet, in doing so, the context of the estimation of a situation of low community spread and the restricted time horizon of three weeks after the school re-openings has to be kept in mind.

Coping with the COVID-19 labor market crisis: Views from Canada

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In a series of IZA Newsroom interviews, renowned international labor market experts comment on how their country has been coping with the COVID-19 labor market crisis and how they expect the situation to evolve. The IZA Crisis Response Monitoring provides a detailed assessment of different policy measures in selected countries, so far not including Canada. To learn more about the Canadian experience, we asked Steven Tobin from Canada’s Labour Market Information Council to share his inside views.

How do you assess the current labor market situation in Canada and the role that government policies have played so far?

In terms of the initial impact on the job market, we haven’t seen anything like this in recent history. In March and April of 2020, Canada lost more than three million jobs. That’s more total job losses than the three previous recessions combined, and over a much shorter period. For context, in 2008–2009, employment in Canada fell by half a million over eight months.

Since May we have quickly regained much of this ground. In fact, between May and September employment grew by nearly 2.3 million. In other words, employment is now within 720,000 (–3.7%) of its pre-COVID (February 2020) peak.

The federal government’s response to date has been swift and aggressive, introducing new programs and expanding existing ones for both individuals and businesses. Of particular note are the Canada Emergency Response Benefit (CERB) and the Canada Emergency Wage Subsidy (CEWS). CERB ran for 28 weeks (to the end of September) and provided a taxable benefit of $2,000 every four weeks for eligible workers — those who stopped working or whose work hours were reduced due to COVID-19. For eligible businesses, CEWS provides up to 75% of a worker’s wages, to a maximum of $847 per week. More details on these and other programs have been made available to the public in the Federal Government’s COVID-19 Economic Response Plan.

How did the Canadian approach differ from other countries, especially the U.S.?

A few things stand out in terms of Canada’s response. First is the speed with which relief measures were put in place. Most programs were up and running by April. And while there were a few glitches along the way, given that many of these measures were entirely new, the fact that programs were in place so quickly was quite remarkable. Second is the breadth of measures introduced. The government recognized that the crisis was hitting households and small businesses alike. The introduction of both CERB and CEWS, among other responses, acknowledged the importance of providing an income bridge to both people and firms.

What would you consider the most probable labor market scenario in six to twelve months from now?

 The strong job gains of the past four months are largely attributable to the re-opening of provincial economies across the country. And as impressive as those gains have been, we remain well below pre-crisis levels with employment levels still down by just over 1 million. The pace of gains has also slowed in recent months.

Moreover, since we are now in a second wave of COVID-19, restrictions on mobility and gatherings have returned. The most likely short-term outlook is that gains will continue to slow or even reverse and thus it will take some time to recuperate the remaining third of jobs lost.

Which aspects of the crisis response in Canada do you find most remarkable?

Most remarkable to me has been the important interplay between politicians and public health authorities. Across federal, provincial and territorial governments — regardless of the political party in power — the advice of public health authorities was consistently at the forefront. Politicians of all stripes largely based their responses to the pandemic on the evidence presented to them by unelected officials.

This evidence-based response has been a great strength. I began to wonder whether this could be a sign that politicians would increasingly defer to experts, even in areas such as (labour) economics, which is often considered “the dismal science.”

What policies would be best suited to support the recovery of employment?

Our priority must continue to be protecting the health and safety of people. As we grapple with the implications of the second wave and consider economic recovery efforts, we must recognize that this crisis is unlike past ones.

To do so, first we must focus our job recovery strategies on supporting those individuals and businesses most affected by job losses and business closures. Otherwise, we run the risk of worsening long-term inequality and social outcomes.

Take for instance, the “shovel-ready” infrastructure projects that proved so successful during the 2008–2009 “Great Recession.” While such programs can provide a much-needed boost with positive spillover effects, they have not traditionally been structured to benefit women and youth — two groups particularly hard hit by the current pandemic. Building public infrastructure should, of course, be part of our recovery efforts (and our ambitions of an environmentally stable recovery); however, policies and programs designed to help those most affected return to meaningful employment should take center stage.

Second, several structural weaknesses in our economy and our workforce have been revealed by this pandemic. In other words, simply helping people back to their previous jobs will not be enough. Many of the jobs affected by COVID-19 could change or disappear altogether. The pandemic has revealed, for instance, that many jobs are associated with a certain level of vulnerability, such as essential workers with limited access to benefits. One of our overall strategies must be to improve the working conditions of these jobs. Essentially, we must reconsider the value of work itself.

Third, since many jobs will disappear and others will shift dramatically, we must develop a workforce strategy that helps workers transition to more sustainable, higher-quality jobs. Upskilling and re-skilling workers to take advantage of these evolving opportunities — while providing much needed income support to bridge the gap — must be the heart of this initiative. Easier said than done, but not impossible. Such an approach requires the following key elements — data, skills and training:

  • We need better data about the skills requirements of emerging jobs. We must improve our understanding of the needs of employers and how they evolve in near real-time.
  • We must support initiatives that help workers, employment service providers and career practitioners to evaluate existing skills and how they can be applied, as well as what new skills training might be needed.
  • We must provide schools and training institutions with the knowledge and capacity to help people transition effectively through demand-driven skills and training, toward meaningful, quality, sustainable employment.

Overall — and I cannot stress this enough — we must shake off the notion that we can get back to “business as usual” as we seek out our “new normal.” Instead, we need to understand that this pandemic can teach us critical lessons about how to re-imagine our economy and our society, and how to do better. Better for seniors, better for workers, better for businesses, better for the environment, better for our own economic stability, better for public health, better for all. If we ignore these lessons, then to paraphrase Albert Einstein, we will have missed the opportunity that lies within this crisis.

How has COVID-19 personally affected you?

With COVID-19 primarily being a health crisis, my initial concern focused on the well-being of family, friends and colleagues. My loved ones were mostly unaffected, so I feel extremely lucky, especially considering that over one million people have lost their lives to the pandemic as of October 2020. As the second wave starts to take hold in Canada, I am hopeful that we have learned some important lessons from the first wave. By following the recommendations of public health authorities, we can limit the health-related (and knock-on) effects of this virus.

From a professional perspective, our organization was able to respond quickly and have been working from home since early March. As an organization, we adopted new ways of working that ensured that staff were both engaged and safe. We also had the opportunity to work on several projects that helped Canadians navigate the crisis, such as our Now of Work Annotated Bibliography, which synthesizes the latest research findings related to work and COVID-19. We were – and remain – highly motivated to make a difference.

I would give myself a passing grade in terms of my success in working from home. Call me old school, or maybe just old, but I miss the daily interactions with my colleagues. I also realize that, as much as I missed them — and often struggled with this new virtual way of working — I never forgot that I am one of the privileged workers who managed to keep their job throughout the crisis. Millions of other Canadians were not so lucky.

Future earnings gap due to COVID-19 school closures

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When children lose out on education, they lose out on future opportunities, including economic benefits, with far-reaching impact on their lives. Like so many aspects of this pandemic, this impact on children and young people seems more likely to take the form of a long crisis rather than a short, sharp shock. Nor is the economic impact of lost learning confined at the individual level. There will be significant consequences for national and global economies as well.

In mid-April, UNESCO reported 192 countries had closed all schools and universities, affecting 1.5 billion children and young people. It is difficult to predict how long schools will remain closed, how severely learning is being limited, and how much this will affect those who are already at a disadvantage. We do not yet know enough about how the pandemic will unfold. But we do know that learning is being lost, and losses will not likely be evenly distributed.

A recent IZA discussion paper by George Psacharopoulos, Victoria Collis, Harry A. Patrinos, Emiliana Vegas offers an initial projection of lost earnings that will result from the current school closures. The researchers began by assuming that every additional year of schooling equates to 8 percent in additional future earnings. They then assumed a period of four months of closures to estimate the loss in marginal future earnings. Real closure periods will vary based on the trajectory of the pandemic and policy choices. However, emerging information from countries including the U.S. suggest four months to be a reasonable estimate.

Third, the researchers assumed that only 10 percent of students would suffer a loss of learning. This conservative adjustment accounts for the range of online and distance learning that has been made available during closures. The emerging evidence is that these resources are in practice more readily available to students in high income countries than others.

Finally, the authors estimate total earnings losses for today’s students assuming a range of labor force participation rates between 70 and 100 percent.

Earnings gaps at the individual level and worldwide

Applied to the worldwide economy, the model projects a future earnings gap of over $US 11,000 at the individual level, or between $10 and $15 trillion (depending on the labor force participation rate) for the whole global cohort. In high-income countries, the projected individual earnings gap is $21,000, or between $3 and $5 trillion for the whole cohort.

In low-income countries, the projected individual earnings gap is $2,800, or between $252 billion and $360 billion (depending on the labor force participation rate) for the whole cohort. In a context of already low wages, depressed growth forecasts, and high rates of poverty, this gap suggests a potentially devastating economic loss for this group of nations.

In middle-income countries, projected individual losses are $6,800, or between $4 and $7 trillion (depending on the labor force participation rate) for the whole cohort. More than 1 billion of the 1.5 billion students affected by closures live in middle-income countries.

Lost GDP due to COVID-19

In terms of GDP, projected losses range from 43-61 percent (depending on the labor force participation rate) in low-income countries, to 15-22 percent in middle-income countries, to 6-9 percent in high-income countries. Taking the weighted average by population for the three regions provides a world estimate of a staggering 12-18 percent in lost GDP due to COVID-19.

By education level, post-secondary school graduates stand to lose $725 a year in present value terms, and almost $18,000 over a lifetime. Secondary school graduates will lose $363 a year and almost $9,000 over a lifetime, while those with less than secondary will lose $272 a year and $6,700 over a lifetime. But since most students around the world are in primary—at 49 percent—or secondary school—at 39 percent—then in terms of aggregate losses, they will be much higher at the lower levels of education, between $6.5 trillion and $9 trillion.

Larger impact on low-wage earners

The earnings losses will hurt those with lower levels of schooling more, as they are likely to move many people to a level of income where it is difficult to meet basic needs. The proportionate impact on a low-wage earner is, therefore, greater in absolute terms as it will affect his or her ability to achieve food security, affordable housing, and so on, compared with a relatively high-wage earner.

In presenting these findings, the researchers emphasize their status as the start, rather than the culmination, of an analytical process. There are complicating considerations, including the uneven quality of learning, differences in provision of effective distance learning, and other pressures that will come to bear on some children, such as the need to find work to help support their families. This paper is offered as a starting point to assist governments in making increasingly informed choices about school closures, and to start a debate on controlling and mitigating the economic downward spiral that COVID-19 is already generating.

From pandemic shock into recession

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The pandemic-related restrictions on economic activity resulted in a massive reduction in working hours in March and April 2020. Only the key professions and those jobs that could be done from home were largely spared. Once the strict corona rules were relaxed, the sectors that were particularly affected recovered relatively quickly, while other sectors recorded a significant drop in hours. This is shown in a new study by economists from ECONtribute and IZA, based on detailed Dutch data.

The early stages of the crisis in March saw a massive drop in working hours, especially in the food service industry (minus 15 hours per week) and in the cultural and tourism sector (minus nine hours). In the key sector of health and social care, the decline in hours was much smaller at 2.5 hours. As Figure 1a illustrates, the change in working hours depended largely on the extent to which the activity could be relocated to home. For example, the average working time in the financial and business services sector remained almost unchanged with a slight minus of just under two hours.

In June, the picture is partially reversed (Figure 1b): The number of working hours in the food service industry increased significantly again, more than halving the gap to pre-crisis levels. At the same time, there was a more than twice as strong decline in hours in fields with high levels of home working, such as in financial and business services. The researchers attribute this finding to the fact that the “character” of the recession has changed: After the first “pandemic shock” with strong industry-specific slumps due to government restrictions and the immediate effects of the virus, a general decline in demand set in that impacted the entire economy. This also meant that the “home working advantage” was no longer relevant: Figure 2 shows how the gap between low and high levels of home working closes between March and June.

The authors conclude that the short-time work regulations made a decisive contribution to enabling companies to adjust working hours flexibly without causing waves of redundancies. There were also hardly any shifts in income distribution, although low-income earners were much more affected by the reduction in hours. “This is where the government programs have a beneficial short-term effect. However, they are of little help when it comes to long-term changes in demand and can even be harmful,” says Hans-Martin von Gaudecker, ECONtribute Professor of Applied Microeconomics at the University of Bonn and head of the IZA research team Structural Policy Evaluation.

The study is based on the work of the CoViD-19 Impact Lab, in which von Gaudecker, together with his research team from Bonn and the Dutch University of Tilburg, analyzes the effects of the corona pandemic and its countermeasures. The aim is to quickly generate helpful data in the current crisis and make it available to the public. More in-depth analyses will follow in the medium term.

Data based on the Dutch LISS panel

The data was collected using the Dutch LISS panel (Longitudinal Internet Studies for the Social Sciences), which, for more than ten years, has regularly surveyed 4,500 households on a variety of topics. The households are representative of the Dutch population and answer the questionnaires online. For this data set, LISS participants aged 16 and over were interviewed in four survey waves in late March, April, May and June. 6,650 people completed at least one questionnaire in full.