The Financial Express

Covid-19 and unemployment shock

| Updated: June 12, 2020 21:21:50

A number of RMG workers in Bangladesh have already lost their jobs due to the pandemic A number of RMG workers in Bangladesh have already lost their jobs due to the pandemic

The lockdown is attacking all groups of people in the world either physically or mentally. No employed or unemployed person will come out better from it. The lockdown may save us from the infection, but the cost will be a very big loss of livelihood. This has already led us into a global recession. In many cases, the loss of livelihood may be irretrievable, the loss could increase vulnerability to health problems far beyond coronavirus.

The World Bank forecasted that South Asia might post 1.80 per cent to 2.80 per cent GDP growth which is still a better scenario than some other regions. On the contrary, employment might shrink as the pandemic continues. It may also create a frail labour force, which will push the development goals far-off to reach.

The crisis is causing an unprecedented reduction in economic activity and working time. According to ILO - this crisis is expected to wipe out 7.20 per cent of working hours or 125 million full-time workers in Asia and the Pacific. Remittances to South Asia are projected to decline by 22.0 per cent to $109 billion in 2020, following the growth of 6.1 per cent in 2019. The deceleration in remittances to the South Asian region in 2020 is driven by the global economic slowdown due to the coronavirus outbreak as well as oil price declines.

It is predicted that the pandemic will increase the number of less educated unemployed people. According to ILO, Bangladesh has more than 85.0 per cent informal labour who are extremely vulnerable. The hardest hit of the impact would involve marginalised low-income people, many of whom are daily wage-earners and self-employed. Recently SANEM researchers ran simulations, which revealed that with a negative income shock of 25.0 per cent, the overall poverty rate would be 40.9 per cent, meaning that another 20.4 per cent of the population or 33.0 million people would plunge into poverty. Besides, the closure of educational institutions is affecting approximately 37.0 million students across the country and if it lasts for a longer period it will engender far-reaching economic and social impacts. While the opportunity for skills development is already shrunk for the youth, the pandemic has made the whole situation even more difficult. It will narrow the upcoming employment opportunity for the fresh graduates. The current massive economic disruption is hurting the 20.0 million youth labour force of Bangladesh.

However, Germany is taking measures to save its small, medium and large businesses and reduce unnecessary layoffs and economic hardship, until the pandemic ends. This is known as Kurzerbaith or Short time working, which is exclusively appropriate for export-oriented economy. Other economic stimulus packages proclaimed in countries in Asia include incentives that will incentivise employers not to lay-off employees. Japan has expanded its loan programme by $279 billion, bringing its total package of financial assistance to small and medium-sized firms to 75 trillion yen. For instance, in India, the government will pay both employers' and employees' contribution to the Employee Provident Fund for the next three months, Singapore will pay up to 75 per cent of local employees' salaries. These are very apposite policies for us to follow to cushion the devastating impact on employment.

Nonetheless, in Bangladesh, the Prime Minister announced a Tk 50.0 billion stimulus package for export-oriented industries. This money should be used only for providing salaries and allowances of workers and employees of those industries. This stimulus package mostly depends on the use of appropriate financing options, proper management so that sectors who are affected receive the support. There should be proper monitoring and accountability to ensure that the money is spent on the workers.

SMEs are characterised as riskier than large firms across the world. These businesses are in lack of motivation on the part of financial institutions to prioritise credit to SMEs. Another stimulus package of Tk 200 billion, will be implemented for small and medium enterprises (SMEs) for providing working capital at a 4.0 per cent interest rate. Cash flow is one of the recurrent problems of SMEs. Government must find a quick way to distribute the money to the small-scale industries that need an easy access to the loan via banks.

However, this is not any conventional crisis that will heal from the exact prescriptions from the pervious crisis, but the government must enforce unemployment insurance for most of the people. They should find out ways to work with entrepreneurs and industries to protect the job of millions vulnerable and unprotected workers. Setting or expanding systems to enrol workers into unemployment insurance schemes with varying levels of contributions. Job losses are inevitable and indeed somewhat necessary to recover the economy. Unemployment will create an unexpected income shock. Unfortunately private insurance for unemployment is rare in fear of the adverse selection problem. Consumption reduction arising out of unemployment not only reduces the welfare of the individual but also reduces the aggregate demand of the economy. Therefore, the government could provide short-term income support on a large scale to secure the jobseekers through unemployment insurance that may serve as public insurance. The unemployment benefits can help the unemployed to maintain their consumption level and promote social welfare.

Shahrat Farsim Chowdhury is lecturer, Department of Economics, East Delta University.



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