In 1918, Orison Swett Marden wrote that “work, love, and play are the great balance wheels of man’s being”. More than a century later, COVID-19 has decidedly knocked us all “off-balance” – and our regions are likely to take some time to regain it. But which regions should we be most concerned about?
Why did jobs in some OECD regions bounce back quicker?
Employment and unemployment rates varied widely across regions long before the pandemic. On average, the pre-pandemic gap in unemployment across regions within the same country was more than 6 percentage points. Austria is a textbook example. They had a 2% unemployment rate in Salzburg, compared to an 8.5% rate in Vienna in early 2020. These gaps were far greater than the median rise in unemployment of 2 percentage points experienced by regions during the pandemic.
Yet regions have also differed in their recovery paths. By 2022, half of OECD regions had yet to make a full recovery to their pre-pandemic rates. Regions with the highest pre-pandemic employment rates often struggling to regain those heights. In Colombia, the Atlántico region is still well below its (high) 62% pre-pandemic rate whereas the Caquetá region has already regained its employment rate of 55%. A similar regional pattern also holds for the Vienna and Vorarlberg regions of Austria.
Half of OECD regions had reached their pre-pandemic employment rates by Q1 2022
Uneven labour-market recovery in regions
To dig deeper into the uneven labour-market recovery across OECD regions, we used data for 250 large (TL2) regions in 21 OECD countries to explore what might be behind a weaker recovery in employment rates between 2020Q1 and 2022Q1. In particular, we considered the sector makeup, education, demography, population density and the pre-COVID-19 state of the labour market. We found that:
- OECD regions with relatively large pre-pandemic employment shares in “accommodation and food activities” had more trouble bouncing back. This sector was hit hard by mandatory closures and voluntary social distancing. As of Q1 2022, employment in the sector was still nearly 10% lower than pre-pandemic. Tourism played a big role, and its recovery is likely to be slow. The double whammy of the COVID-19 pandemic and the energy shock triggered by Russia’s war of aggression against Ukraine has led the OECD to project that tourism is unlikely to fully recover to pre-pandemic in 2023.
- Regions with larger shares of less-educated workers had more trouble regaining employment. Throughout the OECD, workers who did not complete secondary education had higher unemployment rates than other workers before the pandemic. The unemployment rates of less-educated workers rose more in 2020 and remained persistently higher throughout 2021. The larger share of less-educated workers in vulnerable sectors like food and tourism provides one potential explanation. In addition, the COVID-19 pandemic may have accelerated the automation of low-pay jobs that require human contact. Large regional differences in automation risk exposure across the OECD have been well-documented prior to the pandemic.
- Labour markets in regions that had higher employment rates before the pandemic were less likely to have recovered fully by Q1 2022. Indeed, higher levels of employment are more difficult to attain as achieving those also requires engaging those with a relatively lower attachment to the labour market to find work. For these groups of jobseekers, finding employment after a crisis may take relatively more time.
Waiting for the bounce
Despite the broad-based economic recovery, some regions are facing ongoing challenges. If workers’ skills are not well suited for job openings or if they have weaker attachment to the labour force after the pandemic, it will be harder for them to get back to work.
Indeed, all factors we identify as explanations behind regional differences in the labour market recovery following the COVID-19 pandemic point to the need for more supportive measures targeting vulnerable workers.
Unprecedented labour market tightness in many OECD regions open a window of opportunity for policy makers to provide the right training to less-educated jobseekers and facilitate their way back into employment.
The past has taught us that a full recovery may take time. Even before the COVID-19 pandemic, evidence from recessions such as the Global Financial Crisis shows that employment shortfalls in specific regions can persist for many years. Our work shows that while the pandemic exposed and exacerbated structural problems in some vulnerable regions, even very successful regions are struggling to get back to pre-pandemic strength. It suggests that recovery policies such as the EU Recovery Plan may want to focus on both ends of the spectrum to get more balance in labour markets.
References
Linked citations (listed in the order they appear in the blog):
- https://www.oecd.org/cfe/oecd-regions-and-cities-at-a-glance-26173212.htm
- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9183946/
- https://www.oecd.org/newsroom/tourism-rebound-at-risk-as-global-crises-take-their-toll.htm
- https://www.federalreserve.gov/econres/feds/the-great-retirement-boom.htm
- https://www.rba.gov.au/publications/bulletin/2020/sep/pdf/labour-market-persistence-from-recessions.pdf
Other related work:
Lars Ludolph is a Labour Market Economist at the Local Employment, Skills and Social Innovation division of the OECD’s Centre for Entrepreneurship, SMEs, Regions and Cities (CFE). Lars conducts quantitative studies into the matching of labour demand and supply in cities and regions across the OECD. His academic work has a strong focus on the labour market integration of migrants. Before joining the OECD, Lars worked as an economist at the Centre for European Policy Studies and the Central Bank of Malta. He holds a PhD in Economic Geography from the London School of Economics.
Harm-Jan Rouwendal is a PhD student at the University of Groningen in the department of Economic Geography. His research focuses on inequalities and skill demand in regional labour markets, skill mismatch and the spatial effects of automation. He worked with the Centre for Entrepreneurship, SMEs, Regions and Cities on the OECD report ‘Policy Options for Labour Market Challenges in Amsterdam and Other Dutch Cities’. He holds a Bachelor degree in Human Geography and Spatial Planning and a Master degree in Urban and Economic Geography from Utrecht University.
Alison Weingarden is an economist in the Economic Analysis, Data and Statistics Division of the OECD’s Centre for Entrepreneurship, SMEs, Regions and Cities. Her research focuses on labour markets, business dynamics and rural-urban disparities. From 2015-20 she worked as a senior economist at the US Federal Reserve Board in Washington DC, where she helped analyse and forecast unemployment and productivity. Alison completed her undergraduate degree at Princeton University and holds an MSc from the London School of Economics and a PhD in economics from Georgetown University. Prior to her PhD, she worked at the US International Trade Commission and in the macro strategy research section of Credit Suisse.