Jürgen J.: How is the coronavirus crisis likely to affect the job market?

Answers to this question, like so many predictions in the current situation, are highly speculative.

The enormous increase in the number of unemployed over the last few weeks is, of course, alarming. Further developments will depend on a number of different factors. One important question is how soon the measures implemented to control the pandemic will be rolled back. However, the situation in Austria also depends on developments abroad. After all, in normal times we export and import goods and services worth half of Austria’s entire production of end products.

Assuming that the situation eases relatively quickly, I would think that the job market will also recover relatively quickly. Manufacturing facilities are still fully operational and, as far as I can tell, there is nothing to prevent a rapid increase in employment once things get rolling again. However, if the situation drags on for a longer period, there are likely to be some problems. In the event of company takeovers, for example, it could be that fewer of the companies’ previous employees are reemployed there than if the owners remained the same. I think this is particularly important in the area of small and medium-sized enterprises. We also don’t know how sectoral structures will change because of the pandemic. Possibly, the structure of demand will change. That could lead to structural unemployment and could end up being a medium- to longer-term problem.

We can only speculate about total numbers. In the long-term trend, we see that a 1% annual reduction in economic growth leads to an increase in the average unemployment rate of about 0.1 to 0.2 percentage points. This is an average over many years, with most years being “normal” years.

We also can’t calculate the number of unemployed based on a change in the unemployment rate. For example, people often leave the labor market in times of higher unemployment, e.g. by taking early retirement. This decreases the number of active participants in the job market. However, it’s just as possible that this number could rise if people who were not previously active in the labor market start looking for a job, for example to compensate for the loss of income of a partner who has lost their job. Again, the extent to which such effects will occur depends on the duration of the crisis and on whether labor market policy measures, such as short-time work, take effect and/or remain in force for a longer period.

Answer by Thomas Grandner, head of the Institute for Labor Economics.