Alyeen S.: How will the corona crisis affect employment and incomes?

Harald Oberhofer, professor at the Institute for International Economics:

It’s too soon to answer this question definitively. Currently, however, we can already observe marked effects on the Austrian labor market. According to a recent study conducted by colleagues at the Austrian Institute of Economic Research (WIFO), the number of dependent employees fell by around 187,000 in March (as compared to March 2019), which corresponds to a minus of 5%. This is the most significant decline in employment numbers in Austria since 1952. At the same time, unemployment rose by around 200,000 by the end of March. The current short-time work model, which was in place for around 600,000 people in late March, prevented unemployment from rising even more sharply.

As far as Austria’s overall economic development is concerned, current forecasts unfortunately look bad for this year. The International Monetary Fund is predicting a drop of -7% in Austria’s gross domestic product for this year. In comparison, Austria’s GDP “only” shrank by around 3.6% in the course of the 2009 financial crisis. This means that currently, the prognosis for the development of employment and incomes looks bad, worse than it has been for a long time.

Since the development of both the Austrian and the global economy (despite Brexit and trade conflicts) was relatively robust before the outbreak of the coronavirus crisis, there is hope of a relatively quick recovery after the end of the pandemic. For this to happen, however, it is important to stabilize incomes as much as possible during the crisis period and to prevent companies from becoming insolvent: if incomes drop significantly, consumption would collapse, and mass insolvency would interrupt the necessary supply of goods and services (and deny employees an income). The rescue packages and the European Central Bank’s monetary policy are an attempt to achieve this stabilization and to keep the economic damage under control. However, as a small and open economy, Austria’s imports and exports also depend to a large extent on the economic development of our European neighbors as well as the US and China. This means that the question of how quickly our economy will be able to recover after the COVID crisis has been overcome also depends on how well our neighbors handle the crisis. From today’s perspective, the International Monetary Fund predicts that Austria could regain the economic level it had in 2019 over the course of 2022. Until then, and maybe even longer, things unfortunately don’t look very good with regard to employment and income developments.