BOK "Concerns Over Consumption Deterioration Due to COVID Resurgence, Delayed Return of Temporarily Laid-off Workers"

BOK Issue Note - Status and Evaluation of Temporary Leave Employees

[Asia Economy Reporter Eunbyeol Kim] The Bank of Korea pointed out that the speed at which temporarily laid-off workers return to work could be slower than expected due to the resurgence of the novel coronavirus infection (COVID-19). As the burden on companies increases, the duration of temporary layoffs may be longer than anticipated. The reduction and postponement of new hires by companies are also expected to pose challenges to employment recovery.

On the 3rd, Park Changhyun, Head of the Survey Team at the Bank of Korea's Research Department, and Lee Minjeong, Researcher of the Employment Analysis Team, stated in the 'BOK Issue Note - Status and Evaluation of Temporarily Laid-off Workers' that "Although temporary layoffs have increased temporarily during past crises, the magnitude of the increase due to COVID-19 is unusually large," adding, "During the foreign exchange crisis, mass layoffs led to a large number of unemployed, whereas the COVID-19 crisis saw a significant rise in temporary layoffs due to work stoppages caused by the infectious disease rather than unemployment."

According to Statistics Korea, the number of temporarily laid-off workers reached a record high of 1.61 million in March due to the spread of COVID-19, then decreased to 690,000 in July as the situation somewhat eased after May. Given the nature of temporary layoffs, where workers return immediately once the reason for the layoff is resolved, the increase in temporarily laid-off workers has rapidly slowed but remains higher than in previous years. The average number during 2018-2019 was 400,000.

Comparing with past crises, the number of temporarily laid-off workers increased by 120,000 in the third quarter of 1998 during the foreign exchange crisis, and by 70,000 in the third quarter of 2008 during the financial crisis. In contrast, the first and second quarters of this year saw sharp increases of 460,000 and 730,000, respectively.

By sector, jobs heavily affected by COVID-19, such as accommodation and food services, education services, and sales services?jobs involving frequent face-to-face contact?experienced significant increases in temporary layoffs. Over 90% of the increase in temporarily laid-off workers due to COVID-19 occurred in the service industry. By gender, women, and by age group, young people (15-29 years old) and the elderly showed notable increases in temporary layoffs.

The survey results indicated that the trend in the number of temporarily laid-off workers moves counter to the economic cycle and tends to precede changes in the number of unemployed. Park explained, "When the economic phase changes, companies primarily adjust labor input time rather than resorting to layoffs, which causes this pattern," adding, "Changes in unemployment tend to appear one to two quarters after changes in temporary layoffs."

If temporarily laid-off workers return to work at the past average rate (42%), the employment situation could stabilize in the short term. However, Park predicted that the recent resurgence of COVID-19 might slow the pace of improvement.

He added, "While the increase in temporarily laid-off workers instead of unemployed due to companies' economic responses and government employment retention support policies has positive aspects, the recent resurgence of COVID-19 may delay the return of temporarily laid-off workers," and "The wage reductions associated with temporary layoffs could lead to household income deterioration, meaning that an increase in temporarily laid-off workers may act as a factor restricting household consumption."

This content was produced with the assistance of AI translation services.