How non-standard workers are affected and protected during the Covid-19 crisis: Stylised facts and policy considerations

Orsetta Causa, Maria Chiara Cavalleri 30 June 2020

a

A

The Covid-19 crisis has prompted many governments to introduce unprecedented measures to contain the pandemic, which has led to economic sectors being shut down temporarily. The most affected sectors are principally services (such as tourism), those involving contact between consumers and service providers (such as restaurants and entertainment activities), and construction. With the possible exception of construction, these are sectors where activity is likely to remain affected for some time, even as economies slowly recover from widespread shutdowns.  

Protecting workers in affected sectors, especially those most vulnerable to income losses and those with limited social protection, is an important step towards mitigating adverse distributional effects of the Covid-19 crisis. This issue is all the more important given a context in which the changing nature of work has been associated with a gradual rise in new, non-standard forms of employment, thereby challenging the ability of current social protection systems to reach the workers likely to be in most need of support.

New OECD analysis provides estimates of the share of non-standard workers that are particularly vulnerable to the loss of income or jobs as a result of Covid-19-related labour market disruptions and discusses what policies can do, and what policy actions governments have taken, to support vulnerable workers and promote an inclusive labour market recovery (e.g. Stabile et al. 2020, Dingel and Neiman 2020). For the purpose of this analysis, non-standard forms of work include part-time workers, the self-employed, and workers hired on fixed-term contracts.  

To set the scene: on average across OECD countries, the sectors estimated to be most directly affected by Covid-19 containment measures account for around 40% of total employment; the largest sector among those most affected are wholesale and retail trade. 

How many non-standard workers are there?

In the sectors most directly affected, non-standard workers represent around 40% of total employment on average across European countries, ranging from about 20% in Latvia and Lithuania to more than 50% in Italy, the Netherlands, Spain, and Greece (Figure 1).

Figure 1 Non-standard workers in activities most affected by containment measures across European OECD countries (percent of employment in respective sectors, 2018)

Note: Non-standard workers are identified as workers in temporary contracts, in part-time jobs, and the self-employed. Blue bars show the average share of non-standard workers to total employment across the affected sectors. Triangles (circles) show the maximum (minimum) share among the sectors considered.

Source: Calculations based on EULFS data.

Which non-standard workers are likely to be most vulnerable?

Non-standard workers face common risks associated with the labour market disruption due to the Covid-19 crisis because they are habitually less well protected against the risk of job or income loss than standard workers. However, some non-standard workers are more vulnerable than others.

  • Small entrepreneurs may face pronounced individual risks due to often limited access to social protection and also business risks due to shutdown restrictions and/or temporary lack of liquidity.

On average across European countries, small entrepreneurs represent around 14% of employment in affected sectors, and often much more in construction, varying from less than 7% in Luxembourg and Norway to more than 25% in Greece and Italy (Figure 2).

Figure 2 Proportion of small entrepreneurs in activities most affected by containment measures across European OECD countries (percent of employment in respective sectors, 2018)

Note: Small entrepreneurs are defined as self-employed without managerial roles. Blue bars show the share of small entrepreneurs to total employment on average across the affected sectors. Triangles (circles) show the maximum (minimum) share among the sectors considered.

Source: Calculations based on EULFS data.

  • Non-standard employees in low-paid jobs are at high risk of income loss due to the Covid-19 crisis. These employees may work only occasionally or irregularly, sometimes failing to meet the hours or income threshold requirements to access work-related benefits. Tight access conditions to social protection and low benefit replacement rates will weigh relatively more on living standards at the bottom of the wage distribution.

Those employees represent on average around 12% of dependent employment in affected sectors, with low-wage workers representing almost 25% of all employees in Italy and close to 20% in Germany, Ireland, and the UK (Figure 3).

Figure 3 Proportion of low-wage non-standard employees in activities most affected by containment measures across European OECD countries (percent of dependent employment in respective sectors, 2018)

Note: Low wage non-standard employees are those in the first quintile of the employees’ wage distribution.
Source: Calculations based on EULFS data.

Which countries are likely to be most vulnerable?

Some countries are more vulnerable than others to labour market disruptions arising from the Covid-19 crisis and its distributional consequences. Most Southern European countries are particularly exposed: they have larger than average shares of both total employment and non-standard employment in the sectors most affected by containment measures (Figure 4) and they also feature a large proportion of informal employment. Nordic countries appear relatively less exposed, while continental European countries fall between these two groups. Finally, Eastern European countries do not appear among the most exposed from the perspective of total non-standard employment, but they have a large share of small entrepreneurs.

Figure 4 Total employment and non-standard employment in activities most affected by containment measures across European OECD countries

Source: OECD Annual National Accounts, EULFS Database, and OECD calculations.

Policy priorities and responses to support non-standard workers

Many governments have rapidly adopted extensive policy packages to help workers and firms stay afloat during the crisis.1 Most early measures aimed at sustaining firms and workers during the pandemic while strict containment rules were put in place in workplaces. OECD analysis delivers an overview of such policy responses directly targeted to non-standard workers and/or specific hard-hit sectors, which can be summarised as follows:

  • To face the pandemic, about half of OECD countries have exceptionally expanded or eased access to paid sick leave for non-standard workers.
  • To protect all workers who are likely to lose their jobs because of business closures, access to unemployment benefits has been introduced or strengthened for non-standard workers in a majority of OECD countries, given the major social protection gaps in this area.
  • Several OECD countries have introduced temporary income replacement schemes to support self-employed workers experiencing severe income losses. Self-employed in the informal sector and ‘gig economy’ workers are particularly vulnerable to even temporary income losses due to lack of savings and limited access to social protection. Action has been taken in several countries to provide exceptional income support to those vulnerable groups; including attempts to support informal workers in countries featuring a large proportion of self-employment and informality.
  • Beyond measures to protect the self-employed from income losses, almost all OECD countries have taken action to support the activity of small and medium-sized enterprises (SMEs).
  • Some countries provide additional support targeted at small firms operating in the hardest-hit sectors at higher risk of closing down.

The way forward: Reducing the risk of long-lasting adverse distributional effects

Policy action should prevent crisis-related adverse distributional effects from becoming long-lasting by preventing job losses due to Covid-19 from translating into long-term unemployment, scarring effects, and labour market detachment. Despite the presence of wage subsidies during the lockdown, some workers risk losing their jobs as associated public support is gradually phased out. This risk is higher for non-standard workers, especially those with little qualification in hard-hit sectors such as tourism, hotels, and restaurants, which are likely to see their activity decline even as the economy recovers. While it is difficult to quantify the magnitude of potential job losses in different sectors at the current juncture, some sectors are likely to see a persistent drop in demand.

Changes in the labour market may imply the need for workers to relocate from declining to expanding sectors and new ones. The reallocation and matching between workers and jobs should be smooth and inclusive; that is, the process should minimise labour market segmentation and inequality. This will require effective active labour market policies and requalification schemes, on top of adequate income support to help the job search for all workers.

Many OECD countries have temporarily expanded sick leave, health and unemployment benefits to non-standard workers. Consideration should be given to introduce more permanent social protection schemes for such workers after the crisis, as well as to develop portable social benefits systems that move with workers. Equity in access to social protection across different categories of workers would increase job quality and contribute to the reduction of labour market segmentation and inequalities. Reforms in this area would also bring efficiency and equity gains.

References

OECD (2020), “Distributional risks associated with non-standard work: Stylised facts and policy considerations”, Tackling coronavirus series.

Stabile, M, B Apouey and I Solal (2020), “Covid-19, inequality, and gig economy workers”, VoxEU.org, 1 April.

Dingel, J and B Neiman (2020), “How many jobs can be done at home?”, VoxEU.org, 7 April.

Baldwin, R and B Weder di Mauro (2020a), Mitigating the Covid Economic Crisis: Act Fast and Do Whatever It Takes, London: CEPR Press, 18 March.

Baldwin, R and B Weder di Mauro (2020a), Economics in the Time of Covid-19, London: CEPR Press, 6 March.

Endnotes

1 See the OECD Key country policy tracker

a

A

Topics:  Covid-19 Labour markets Poverty and income inequality

Tags:  COVID-19, workers, Inequality

Senior Economist, Deputy Head of Division, Structural Surveillance Division, OECD Economics Department

Economist, Economics Department, OECD

Events

CEPR Policy Research