Article World Economic Situation And Prospects: June 202 Briefing, No 138
Emerging economies are facing an unprecedented health and economic crisis. The synchronous collapse in global demand and the widespread disruptions in supply chains are inflicting severe economic pain through trade, financial, and commodity price channels. To contain the pandemic, emerging economies have imposed, to varying degrees, lockdowns and social distancing measures, further disrupting economic activity. Economic activity is shrinking at an exceptional scale and speed.
The COVID-19 crisis is wreaking havoc on labor markets in emerging economies. Millions of people are either losing their jobs or going through significant reductions of their income or working hours, as many labor-intensive services sectors are worst affected. Many firms, especially SMEs with little working capital and credit lines, are likely to go bankrupt. The pandemic is also increasing under-employment, reducing working hours, and rising informality.
Looking ahead, the prospects for labor markets in emerging economies are gloomy. Countries will face enormous challenges to recover. It will be difficult to re-absorb the millions of jobs that have been lost, even if there is a recovery in output. In fact, frictions in labor markets can cause a slow and jobless recovery, as matching workers and vacancies can be costly. In addition, restarting businesses that have gone bankrupt can be a long process. The ongoing crisis may also accelerate automation, which will lead to the disappearance of routine jobs, aggravating job and wage polarization, and exacerbating income inequalities.
References: United Nations