ILO’s World Employment and Social Outlook (2024) – Growing imbalances between the demand for and supply of labour have been a puzzle

• On 10 January 2024, the International Labour Organization (ILO) published a new annual report on the global labour market, employment trends, and emerging labour market challenges.
• The report shows a complex scenario, characterised by disparities between high- and low-income countries, a large part of the workforce employed informally and the prevision of a slight increase in global unemployment in 2024.
• At the same time, although the recovery from the pandemic remains uneven and economic conditions due to inflation have worsened, labour markets have shown impressive resilience.

According to the report, post-pandemic economic and social recovery still needs to be completed, and progress on social justice is slowing.

In 2023, labour markets showed remarkable resilience, while by 2024 the global unemployment rate – which had improved slightly from 5.3 to 5.1 per cent in 2023 – is set to worsen again, bringing the rate back to around 5.2 per cent.

The employment situation continues to be uneven among higher-income countries, where the jobless rate in 2023 was 8.2 per cent compared to 20.5 per cent in lower-income countries.

Labour and skills shortages are still critical topics on the agenda of policymakers.

There is also an excess of job vacancies in specific sectors that are difficult to fill, leading to a severe sectoral mismatch.

Labour participation rates also remain gender uneven, especially in emerging and developing countries, and the situation is even more worrying for young people, whose integration into the labour market in the long term remains difficult.

From a quantitative point of view, moreover, even if people have re-entered the labour market, they tend not to work the same number of hours as before the pandemic, also due to the increasing incidence of part-time employment, since part-time employees often need help to return to a full-time job.

The report emphasises that improving working conditions and increased productivity could help resolve specific labour market imbalances.

It also stresses the need for political actions focused on social justice to ensure a fair and sustainable global economic recovery.

Labour shortages amidst unmet demand for decent work

Growing imbalances between the demand for and supply of labour have been a puzzle for economic observers and policymakers in recent years. Despite large job market disruptions from the pandemic, labour demand outstripped available supply early in the recovery in advanced economies and key sectors. Although 2023 brought some relief, many vacancies remain unfilled as employers struggle to find personnel. Labour imbalances have been slow to resolve and now threaten to impede a fast, equitable and sustainable economic recovery. They have also created spillover effects in emerging and developing countries that have abundant labour supply but are affected by the “higher for longer” interest rate posture adopted by many advanced countries in response to their labour market imbalances. Over the longer term, imbalances between labour-rich countries and those with shrinking labour forces are likely to contribute to increased international migration flows. If not addressed by comprehensive skills partnerships that benefit both source and destination countries, this situation could worsen skills shortages in sending countries.

At the same time, fears of a sustained reduction in labour force participation following the pandemic have proved to be unfounded, since workers have generally returned to work in most regions and country income groups. In 2023, unemployment rates fell below pre-pandemic levels in all country groups except low-income countries as global employment growth continued to be positive (see Chapter 1). On the other hand, total hours worked have not increased at the same rate as employment, since mean weekly hours have declined and part-time rates have risen. Possible drivers include health reasons, workers’ preferences in response to working conditions, and also employment retention where firms have maintained staff despite lower workloads in order to avoid the need to rehire employees later. Labour markets have failed to adjust to changes in demand, partly because of lower worker mobility and stagnating wage growth. Secular trends, especially population ageing and technological change, are posing further challenges by intensifying skills shortages.

Local and global consequences of labour and skills shortages

Labour shortages can have severe economy-wide consequences in affected countries. They not only harm businesses, by hindering growth and the exploitation of a nation’s full economic potential and thus decreasing overall income. By raising hiring and labour costs for businesses, shortages can also contribute to higher consumer prices and thus raise the cost of living, which usually disproportionately affects poorer households. High-income countries have experienced low economic growth and a manifest slowdown in productivity growth for some time (ILO 2023a). Labour shortages can further reduce growth prospects and put a brake on the recovery process.

Shortages of essential workers in key sectors are set to create supply bottlenecks in affected economies. A continuing shortage of health personnel and also workers in transportation and accommodation and food services may worsen access to and the quality of services rendered and products delivered. The pandemic has demonstrated how much economies depend on these types of essential workers (ILO 2023a). Consequences range from long waiting hours to more serious concerns, for example when health needs cannot be met because of a lack of personnel. Labour shortages in essential services such as healthcare can also worsen working conditions for overstretched staff (Buchan, Catton and Shaffer 2022). Shortages of workers in agricultural firms threaten food security and contribute to rising food prices. A lack of workers in construction can hinder access to affordable housing and hamper necessary infrastructure projects. Export firms may struggle to remain competitive with respect to product quality, innovative capacity and productivity when value chains are disrupted by labour shortages.

What’s more, a shortage of labour in some economies can create spillover effects in the rest of the world. The pandemic has shown the impact of disruptions in labour supply – mainly caused by high infection rates – on global supply chains, producing ripple effects in the global economy (Ivanov and Dolgui 2022). Trade between advanced and developing economies experienced significant turbulence partly because of demand shifts and labour shortages in importing countries, and this led to port congestion (Komaromi, Cerdeiro and Liu 2022). Production bottlenecks have triggered an acceleration of inflation, forcing major central banks to tighten monetary policy rates and so causing adverse effects on global financial conditions. Meanwhile, migration out of countries with lower wages and poor working conditions towards those with shortages of skilled workers has adversely affected the supply of skilled labour to fulfil key roles in source countries.

Labour supply

The available supply of labour is determined by the number of people in the labour force as well as the number of hours they are willing and available to work. Adjustments can occur through both factors: either more swiftly through a change in the number of hours worked, or via a somewhat slower adjustment of the number of people at work. During the pandemic these measures decreased at varying rates depending on policy choices made regarding job retention schemes and the expansion of unemployment benefits. As economies reopened and labour markets recovered, a full and swift recovery in participation rates was considered uncertain. However, data on labour force participation demonstrate that pandemic-induced labour supply reductions have been fully reversed in most ILO subregions.

Chosen excerpts by Job Market Monitor. Read the whole story @  World Employment and Social Outlook: Trends 2024