How will the coronavirus crisis affect the job market?


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

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

We can only speculate about specific long-term effects of this situation, but I will give it a brief try: Possible effects can be classed in 2 categories:

1. Changes in production

This applies especially to digitalization. Digitalization is not a new phenomenon, but the experiences of the corona crisis could result in an acceleration in some areas; “services” (even within production companies) are more likely to be affected than actual production. New (digital) communication technologies have been tested during this phase and have spread quickly to companies that had not previously invested in this area. This means that long-term, there is likely to be an increased need for skilled workers not only in the field of digital infrastructure but also in training and similar areas.

Teleworking has now been thoroughly tested in many different areas. Both the positive and negative experiences that have been gained during this crisis will influence how we work in the future. Here, too, it’s important to note that these are not new developments, but that they will probably be implemented more rapidly now.

2. Changes in demand for goods

The corona crisis may result in a shift in demand for consumer goods, which would then impact the job market. The tourism sector is currently one of the areas most hard hit by the crisis, and many more businesses will encounter major difficulties before it’s over. Impacts on individual businesses vary widely, depending on what they offer and where they are located. This could also result in long-term structural changes in this industry, which could then possibly lead to long-term changes in pricing and subsequently to changes in demand. For example, recreational behavior could change in the long term, although I think this is less likely to happen if the pandemic is actually overcome completely. Conference tourism and business travel could decrease (what I wrote about digitalization above also applies here). This means that labor market developments in the tourism sector, one of the hardest hit industries in the short term, are also very difficult to assess in the long term and could possibly be negatively impacted.

This section also includes the field of health and caregiving professions. Here, too, there has been an increased demand for labor for some time. The corona crisis has highlighted the need for a wide range of differently qualified specialists in this area. Obtaining these qualifications takes time, meaning that these services cannot be provided at short notice. For this reason, certain reserves (not only of personnel) need to be available. This increased demand should lead to a rise in wages in this area in the medium term, which should also lead to an increase in supply, so I see the development here as positive.    

Labor market policy

The crisis will indubitably affect labor market policies. During times of crisis, government institutions are always given greater responsibility and are often seen to be more likely to be able to solve problems (at least in the short term) than private institutions.
Short-time work is a case in point. This is the second time in 12 years that this instrument has been (successfully) implemented on such a large scale. The resulting experiences will continue to influence opinions on policy measures for some time.

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

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