Workforce across the world set to face even greater economic hardship in 2023

According to the IMF’s assessment, made before the emergence of the new COVID-19 wave in China, global economic growth was likely to fall to 2.7 per cent

Workforce across the world set to face even greater economic hardship in 2023

Dr Gyan Pathak

The workforce the world over would face even greater hardship in 2023. The IMF has already sounded an alarm over the grim global situation in their latest World Economic Outlook. More than a third of the global economy is expected to slip into recession in 2023, while the three large economies – the United States, the European Union, and China – would continue to stall, IMF Economic Counsellor Pierre-Olivier Gourinchas has said.

According to the IMF’s assessment made before the emergence of the new COVID-19 wave in China, the global economic growth was likely to fall to 2.7 per cent with a 25 per cent probability that it might fall below 2 per cent. The China nightmare, which has threatened every part of the world, would additionally caste its shadow, distorting the labour market.

With no end to the Russia-Ukraine war in sight, commodity prices and food supply chain are expected to be volatile. “We expect global inflation … to remain elevated for a longer than previously expected,” IMF’s October outlook had said while projecting global inflation projections at 8.8 per cent in 2022.

China’s new COVID-19 outbreak is an evolving situation, in which one million people are expected to die within 90 days, with over 60 per cent infection in China and over 10 per cent globally. It may disrupt the entire supply chain of the world, and several sectors of the economy are threatened with a significant reduction in their activity.

Millions of people had already been laid off, especially in the IT sector, in 2022 due to the global economic downturn, in which migrant workers have suffered the worst.

The ILO’s flagship Global Wage Report 2020-23 released on November 30, just a week before the outbreak of new COVID-19 wave after the relaxation given on the zero-COVID policy of China on December 7, has included evidence on how the inflation was biting into the real wage growth in most regions of the world.

The report shows that for the first time in the 21st century, the growth of real wages has fallen to negative values while, at the same time, the gap between real productivity growth and real wage growth continues to widen.

During the earlier COVID-19 crisis from 2020-2022, the various components of the wage bills – such as employment, nominal wages, and inflation – changed, and more recently the situation aggravated during the cost-of-living crisis. Wage inequality and gender pay gap has been on the increase which has worsened the income inequality in different regions of the world.

The UN and the ILO has all along been urging the world to adopt appropriate policies for a human-centred economic recovery, but only a little has been done to date, while multiple crises have been unfolding.

The ILO’s report shows that wages and the purchasing power of households have been dented considerably during the past three years, first by the COVID-19 pandemic and then, as the world economy started to recover from that crisis, by the global rise in inflation.

In 2022, rising inflation caused the real wages to dip into negative in many countries, reducing the purchasing power of the middle class and hitting low-income groups particularly hard.

In the near future, in the absence of adequate policy responses, the workforce could see a sharp erosion of the real incomes, increase in inequality, further threatening the economic recovery and possibly fuelling further social unrest, the ILO report had warned just a week before the emergence of the new COVID-19 wave in China.

In the global economic downturn and labour market context, the ILO report has pointed out that the improvement in employment level witnessed by the second quarter of 2022 was limited to only high income countries, while it remained at about 2 per cent below the pre-pandemic level in middle- and low-income countries.

Employment in the informal economy was found to be rising faster than in the formal economy.

During the last two quarters of 2022, inflation remained quite stubborn with rapid price rise, despite a global response tightening of monetary policy since mid-2022.

The projection of inflation for 2023 made before the new COVID-19 outbreak in China stood elevated at 6.5 per cent.

In the inflationary context, the erosion in real wages comes on top of some significant wage losses incurred by workers and their families during the three years of the pandemic during 2020-2022.

The governments the world over showed data to tell the people that average wages increased globally by 1.5 per cent in 2020, and by 1.8 per cent in 2021, but is should be interpreted in the context of job losses and change in the composition of employment in large countries such as in the US.

The mathematical fallacy should be noted and people should know how this data has improved despite an increase in joblessness, and low-paid jobs.

The ILO report has said, “In these countries, a majority of those who lost their jobs and hence their earning during the pandemic were low-paid wage employees, while their higher-paid counterparts remained employed, thereby increasing the estimated average wage.”

As a result of this “composition effect” in some countries, average real wages in the advanced G20 economies jumped by 1.7 per cent in 2020, the highest wage growth recorded in many years, but then increased by a much lower rate of 0.4 per cent in 2021, the ILO said.

With slowdown of the global economy and rising inflation, real wages of workers have been on the decline, while unemployment, job losses, and lack of job opportunity remained a dominant feature of the job market.

With prospect of further deterioration in global economic growth, the job market condition would certainly deteriorate in 2023, with additional uncertainly of the evolving COVID-19 threat from China.

The world needs a human-centric policy response with complete social security coverage for the workforce more than ever before.

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