The global economy experienced a deep recession in 2020, and as a result, more than 40m jobs were lost as businesses shut down. Against this backdrop, Economist Impact set out to understand how long it would take for employment to recover fully and to examine the different paths ahead for the five regions of the global economy: North America, South America, Europe, the Middle East and Africa, and Asia.
When will employment levels converge with pre-covid trend?
Navigate through the graphic below. Use the arrows on the top left to move across years and the slider on the map to switch between optimistic and tempered scenarios.
Underpinning a recovery in labour markets will be the strength of the economic recovery in each region, which is far from certain. The war in Ukraine is the latest in a series of major shocks facing the global economy, which has yet to emerge completely from the covid-19 pandemic and ongoing supply chain disruptions. While the economic impact of the war is likely to have the most significant impact in Europe, the indirect effects on trade, supply chains, investment and consumer spending will be felt around the world. In light of the heightened uncertainty related to global economic conditions, to properly investigate a labour market recovery we have used scenario forecasts rather than single forecasts of employment, as they capture the underlying uncertainty in the system. This produces a range of outcomes for a labour market recovery, depending on the scenario and the region.
Key findings of this research:
Global labour markets have yet to recover fully. Although the number of people employed saw a recovery and returned to pre-pandemic levels in 2021, this represents only a partial recovery in employment. A full recovery would have seen the number of people employed reaching the levels that would have been achieved had there been no pandemic. According to this study, global employment would have stood at 2.83bn in 2021 without the pandemic, i.e. 0.7% higher than the actual number of people employed.
Although Economist Impact’s optimistic scenario expects global employment to recover fully by 2022, the tempered (or more pessimistic) scenario of a recovery in 2023 is more likely in the current climate. The ongoing war in Ukraine is just one risk factor that could further damage global growth, with interest rates, inflation and food prices also creating challenges.
Regionally, employment levels in North America and Asia will record the fastest recovery. In North America, employment could recover fully in 2022 under the optimistic scenario and in 2023 in the tempered scenario. In Asia, on the other hand, employment levels are expected to recover fully in 2022 under both scenarios. This result is driven by the finding that Asian labour markets are less sensitive to economic growth than those in North America, implying that changes in economic growth have a smaller impact on employment. With uncertainty over economic growth now a feature of the global economy, the relative lack of sensitivity to growth will be a benefit for Asia in this recovery period.
Europe will see the greatest degree of uncertainty in its labour market recovery owing to the war in Ukraine. Europe’s economy is most adversely affected by the war as a result of soaring energy prices, commodity and food inflation and disruptions to supply chains. Before the war employment in the region was experiencing a strong recovery. This has since shifted, and the employment recovery from covid-19 could be even worse than we are forecasting in our downside scenario. A full recovery may not take place until the middle of the decade, which is a long way from the pre-war estimates that would have seen a full recovery in employment in 2022 under both scenarios.
South American employment may not recover fully until the second half of this decade. The war in Ukraine will add to underlying inflationary pressures in the region, resulting in a challenging environment for economic growth. The greatest spillover effect from the Ukraine war would stem from increased food and energy prices. With the balance of risks currently facing the region, the employment recovery is likely to be slow and uncertain.
In the Middle East and Africa, employment levels are expected to recover fully by 2023 under an optimistic scenario. This scenario may be more likely in the region as it is less exposed to the adverse impacts from the war in Ukraine. The major downside risk for the region will be a slowdown in global economic growth and other region-specific risks, such as a food crisis in Sub-Saharan Africa. Should these risks materialise, they could derail a recovery in employment until the second half of the decade.
The risk of wage-price spirals is highest in North America and Asia as a result of tightening labour markets, but this is unlikely to materialise. Although trends such as the Great Resignation and older people permanently leaving the labour market are putting upward pressure on wages, these are temporary adjustments. Together with monetary tightening by central banks such as the Federal Reserve (Fed, the US central bank), the outcome is likely to be a softening of economic demand, which will help to alleviate inflationary pressures.
Companies navigating this degree of uncertainty in regional labour markets must undertake a great deal of scenario planning, with strategies in place for a few of the most likely outcomes. It will require a collaborative effort across the strategy, human-resource and finance functions to map out the impact not just on team structures and operations but also on finances if higher wages for retention erode profitability. Firms that emerge successful will be those with the agility to respond quickly and creatively to the changing labour market conditions.