Home >News >World >Unemployment expected to reach highest level since Great Depression

USA : Unemployment rates in the world’s advanced economies will end the year higher than at any time since the Great Depression and not return to their pre-pandemic levels until 2022 at the earliest, the Organization for Economic and Cooperation and Development said Tuesday.

The Paris-based research institute that serves the US and 36 other countries warned against the premature withdrawal of emergency measures designed to support employment, and said governments should launch new programs to encourage businesses to hire workers, particularly those entering the jobs market for the first time.

Jobless rates could be even higher if a second wave of outbreaks leads to fresh, if partial lockdowns, the OECD said. If the US is hit by a second wave of lockdowns, the OECD forecasts jobless rates of 12.9% in 2020 and 11.5% in 2021, compared with 11.3% this year and 8.5% next year if there is no sustained resurgence.

The lockdowns that governments imposed from mid-March in an effort to contain the coronavirus led to large-scale layoffs. Across the OECD’s members, the jobless rate has returned to the level last seen in the aftermath of the global financial crisis.

“We are basically back where we were in 2010," said Stefano Scarpetta, director of employment at the OECD. “In three months, we’ve lost all the gains in employment that it took a decade to make."

Mr. Scarpetta estimates that even if a second wave of coronavirus outbreaks is avoided, the jobless rate for OECD members will hit 9.4% in the final three months of this year, a level not seen since the 1930s. In the event of a second wave of coronavirus outbreaks, the jobless rate could rise to 12.6%.

Even if further outbreaks are avoided—an outcome the OECD labels the “optimistic" scenario—the jobless rate is expected to fall only gradually, to 7.7% by the end of 2021. In the event of a second wave, it is expected to stand at 8.9%.

The loss of jobs is only one measure of the pandemic’s impact on the labor market. Based on statistics from a small group of countries that includes the US, the OECD estimates that total hours worked fell by 12.2% in the first three months of the lockdown, compared with 1.2% in the first three months of the global financial crisis.

Although the US’s jobless rate fell in May and June, the OECD expects it to experience the largest rise in unemployment this year, an increase of 7.6 percentage points.

By comparison, Germany’s unemployment rate is expected to rise by 1.4 percentage points this year, while the French rate is forecast to increase by 2.5 percentage points. In both cases, the expected drop in 2021 will leave the jobless rate higher than it was before the pandemic struck.

The broader economic cost of the lockdowns is still being calculated. The European Union estimated Tuesday that the eurozone economy shrank by 13.6% in the three months through June, a decline in activity that is unprecedented in its speed and depth.

For 2020 as a whole, the EU sees the eurozone economy shrinking by 8.7%, having forecast a 7.7% drop just three months ago. That is because the lifting of restrictions has been more gradual than the EU had expected.

The OECD’s forecasts show that it expects that some of the workers whose wages are being paid by the government under furlough schemes will lose their jobs later in the year. The research body said that governments should start to wind down those schemes as lockdowns are eased, or risk keeping workers in jobs that don’t have a medium-term future.

“Now we have to let market forces play a role," said Mr. Scarpetta. “The market will tell which firms, and which jobs, are viable."

The OECD said the best way to wind down the schemes would be to ask participating businesses to pay a larger share of the wages subsidized by the government, but to delay those payments or treat them as a zero-interest loan to minimize the immediate financial pressure on employers.

However, the OECD said the furlough schemes should be maintained for sectors that have yet to fully reopen, including tourism and other services that involve travel and close interpersonal proximity. More broadly, the OECD warned governments not to remove support for employment and for the incomes of unemployed workers before the economy is in recovery.

“There is a risk of complacency and also a risk that we will reduce the support too soon," said Mr. Scarpetta. “If we do that, there is a risk of a second wave, not of the virus, but of unemployment."

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