The Bank of Korea: "Short-term Unemployment Due to COVID-19? Half May Become Permanently Unemployed"

BOK Issue Note - Three Major Labor Market Issues Related to COVID-19 and Response Measures

[Image source=AP Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] An analysis suggests that the employment shock caused by the spread of the novel coronavirus infection (COVID-19) may last longer than expected. Since job losses due to COVID-19 could be permanent, it is pointed out that the government should implement employment retention support policies more actively.

On the 7th, Hyejin Kim, Associate Research Fellow at the Micro-Institution Research Office of the Bank of Korea Economic Research Institute, stated in the 'BOK Issue Note - Three Major Labor Market Issues and Countermeasures Related to COVID-19' that "Most workers perceive job losses caused by COVID-19 as temporary, but a significant number may remain permanently unemployed."

According to the U.S. Current Population Survey (CPS) in April, 78% of the unemployed responded that they were in a 'temporary layoff' status, but other survey results (Barrero et al. 2020) estimated that 31-56% of job losses due to COVID-19 would be permanent.

Associate Research Fellow Kim explained, "This estimate was made using U.S. labor market data and applying the reemployment rates after previous crises," adding, "In Korea, labor market mobility is lower than in the U.S., so there is a considerable possibility of long-term unemployment."

Therefore, he emphasized that actively utilizing employment retention policies is important to prevent prolonged unemployment. He also added that it is necessary to provide vocational training that can minimize the loss of human capital.

He advised that there is also a need to build infrastructure necessary for telecommuting. Since the introduction of telecommuting increases productivity and creativity, as well as workers' satisfaction, active responses are needed in this area. However, since the possibility of telecommuting varies by occupation and industry, he added that ways to improve productivity by sector should be considered.

Associate Research Fellow Kim explained that as COVID-19 cases increase, there are more instances where factories or workplaces completely shut down, accelerating automation, which also needs to be considered. Automation is being promoted due to COVID-19, intensifying job polarization by reducing repetitive jobs, which could worsen wage inequality. He said, "If mid-skilled workers improve their skill levels through training or if newly educated high-skilled workers enter the labor market, wage inequality could be alleviated."

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