An Oireachtas body has warned that the ‘scarring effects’ of the Covid pandemic will hit young, female and elderly workers the hardest and could mean higher long-term unemployment and lower economic output.

The Parliamentary Budget Office report, Labour Market Scarring, gives context on the sectors hit hardest by the pandemic and the disproportionate effect on youth unemployment.

Among the findings of the report are:

• Covid-19 has had a significant effect on the labour force, and youth unemployment is more than twice the unemployment rate of the overall workforce.
• At its peak in Q2 2020, the unemployment rate had risen to 31.5% while youth unemployment was 67.4%.
• In July this year, an estimated 75,000 young people were Not in Education, Employment, or Training (NEET)
• Contact-intensive industries (hospitality, construction, retail) have been the worst affected sectors, accounting for the majority of PUP recipients.
• The long-term unemployment rate has increased from 1.3% to 1.7% between Q1 2020 and Q1 2021.
• The impacts of long-term unemployment are particularly severe for young people, estimated at a lasting wage penalty of 8% to 10% and an employment penalty of 6% to 9%.
• The long-term scarring effects on individuals come in the form of limited career prospects, reduced earnings, diminished skills, social exclusion, and health problems.
• The withdrawal of income supports could lead to a labour market with greater demographic inequality, rising poverty, and fewer jobs.
• For workers in firms and sectors that are no longer viable, the policy focus will shift to re-skilling so that these workers can transition to other sectors and prevent long term scarring.

Job losses were limited in sectors most conducive to remote working,  so that office workers have seen a shift from a daily commute to working from home, while sectors such as e-commerce and IT services have seen a surge in growth.

“The expansion in these sectors is unlikely to offset overall job losses, which will result in a new cohort entering long term unemployment,” says the PBO report. “The long-term scarring effects on individuals of this, come in the form of limited career prospects, reduced earnings, social exclusion, and health problems.

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“This was prevalent in the aftermath of the 2008 financial crisis when unemployment reached 16.2% in February 2012. The scarring effects caused by the pandemic will have long-term implications for the economy and will result in higher long-term unemployment and lower output.”

Since the beginning of the pandemic, youth unemployment has been more than twice the unemployment rate of the overall workforce. 

Many young workers begin their careers working service jobs but have been unable to obtain employment due to the pandemic. thye PBO believes that young adults' limited work experience will count against them when they are applying for part time/entry-level jobs, creating structural barriers, and preventing career development opportunities later in life.

The impacts of long-term unemployment are particularly severe for young people, estimated at a lasting wage penalty of 8-10% and an employment penalty of 6-9%, relative to workers with similar characteristics.

Grim For Women

Female workers and employees aged over 55 may face the greatest challenges in returning to employment. “These groups have exhibited a higher propensity to receive pandemic-related income supports, suggestive of a higher potential flow into post-pandemic unemployment or inactivity when the supports are phased out,” says the PBO report.

“The withdrawal of income supports could lead to a labour market with greater demographic inequality, rising poverty, and fewer jobs for workers in hospitality, construction, retail. Workers in receipt of EWSS are vulnerable to unemployment when the supports are phased out, causing scarring effects that could last years in the form of lost human and economic potential," says the PBO. 

The report is pessimistic about the prospects for those between 55 and retirement age, and states: “As the economy recovers and government income support is phased out, workers aged over 55, who account for 14% of income support recipients, may be at risk of becoming long-term unemployed or no longer participating in the labour force.

“For workers in firms and sectors that are no longer viable, the policy focus will shift to reskilling so that these workers can transition to other sectors,” the report concludes.

The full report is available here.

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