TUAC Working Group on Economic Policy takes stock of the Covid-19 crisis and engages with G20 & G7 Presidencies

On 10-12 March 2020, the TUAC Working Group on Economic Policy gathered virtually to discuss key messages and delve deeper into current topics of economic and employment policy, including with OECD Secretariat Directors and senior economists, as well as with the Sherpas of the Italian G20 and British G7 presidencies.

Chaired by Bill Spriggs, Chief Economist to the AFL-CIO, the WG meeting gathered economists and international relation officers from OECD and G20-based trade union centres, the ITUC, the ETUC and several Global Union Federations over a three-day videoconference meeting. The meeting agenda including the economic and employment outlook, the OECD Structural reform agenda, on-going OECD work streams on productivity, telework and industrial policy, the transition of the OECD leadership and consultations with G20 & G7 sherpas.

The Outlook: (slightly) improved growth projections

On 9 March 2021, the OECD published its traditional Economic Outlook Interim Report, under the title “Strengthening the recovery: The need for speed”. Compared to the December 2020 edition of the Economic Outlook, the OECD has revised global GDP growth projections upwards, to 5.5% in 2021 and 4% in 2022 (+1.3% and +0.3%, respectively), fore loading much of the recovery from the COVID-19 crisis to this year. The main drivers of this upward revision are the US fiscal stimulus of USD 1.9 trillion just approved by the Congress and the speeding up of the vaccination process. This will lift US GDP by 6.5% in 2021 (+3.3% compared to the 2020 EO) and 4% in 2022 (+0.5%), having also beneficial effects for its economic partners. G20 economies will grow on average by 6.2% (+1.5% compared to previous forecasts) in 2021 and 4.1% in 2022 (+0.4%). China, India and Turkey, in particular, have already recovered to pre-pandemic levels, thanks to sustained fiscal intervention and favourable dynamics in manufacturing and construction.

Signaling the improved macroeconomic scenario is the level of global industrial production, which has surged in recent months, driven in particular by IT equipment and medical supplies, and global merchandise trade, which has already recovered to pre-pandemic levels. Household consumption improved in the second half of 2020, following the gradual re-opening of economies, before fading out due to the second wave of the COVID-19 pandemic and related lockdown measures. However, the OECD notices that the impact of recent lockdowns on the economy is not as stark as in the spring of 2020, suggesting on the one hand that businesses and consumers are better prepared to adapt to the new normal, but on the other hand raising the possibility that the economic recovery, once containment measures are lifted, proves less strong than anticipated.

Yet, the aggregate picture masks significant divergence, both between regions/countries and sectors. The euro area sees only a mild improvement in 2021 (3.9%, +0.3%), with better projections for 2022 (3.8%, +0.5%). The reason is the uncertainty about the rapid implementation of the EU Next Generation recovery plan, failing to boost European economies in the short term, in contrast with the American Rescue Plan, which highlights the importance of rapid and sustained fiscal intervention in the fight against COVID-19.

Indeed, much of the projections will depend upon the ability of governments to administer COVID-19 vaccines quickly to vast shares of the population. This would allow re-opening business activities and boosting consumers’ confidence. The risk of scarring effects by the COVID-19 pandemic shall also not be underestimated: latest projections position global GDP at the end of 2022 still 2% below what was projected at the end of 2019, i.e. the last forecast before the pandemic hit. This is particularly true for many emerging-market economies, starting with India and Indonesia.

The Employment Outlook

The newest OECD employment statistics draw attention to the substantial loss of working hours during the pandemic. These figures show substantive income loss and underemployment. While the OECD recommends maintaining support measures to sustain household incomes and maintain job retention schemes – where they exist – as long as needed, to avoid labour market shocks, these will still come once the measures are lifted. OECD data clearly shows which sectors and groups will be most affected.

Conditions on labour markets remain particularly worrying. Across OECD economies, there are 10 million more unemployed than before the crisis. However, TUAC participants argued that this figure might be misleading and hide much more fragility on the labour markets, first because many long-term unemployed have fallen out of the labour force as active participants, in the statistics, and second because in most countries short-term work schemes and dismissal bans are still in place, hiding the real impact of COVID-19 on the labour market. Previous recessions have shown a certain lag of one to three years between the bottom in GDP growth and the peak in unemployment rates, suggesting the true impact on workers has yet to manifest. Job losses, as confirmed by the OECD, are particularly concentrated in leisure, hospitality, transportation, retail and wholesale trade, which account for 20-30% of total employment in most countries. Fragile categories, including women, young people and low-income workers are the most exposed to the negative impact of the crisis, making the swift unfoldment of vaccine campaigns imperative for safeguarding their economic prospects.

Moving ahead, TUAC members urged the OECD to make good use of the 2018 Job Strategy, since its correct adoption by governments remains crucial for promoting a high-quality job environment, preventing labour market exclusion and preparing for future risks by increasing labour market resilience. The same applies to the OECD itself and taking up conclusions of the Jobs Strategy in its policy analysis. This particularly concerns the strategy’s positive assessment of coordinated and centralised collective bargaining.

The call for sustained monetary and fiscal intervention

In the Interim Economic Outlook, the OECD reiterates its call for continued supportive monetary and fiscal policy, in line with its position ever since the start of the COVID-19 crisis, which is positive. Public debt levels do not pose an immediate threat, and debt-servicing remains sustainable in the current context of long-term low interest rates, as long as growth is secured. Fiscal support is necessary in this context, to avoid an abrupt stall of the economic engine and lead to a stronger recovery. The OECD calls for more targeted support as the crisis unrolls, re-allocating capital and labour from sectors in distress to better performing ones. Yet, TUAC participants argued that this exercise might prove easier in theory than reality, since in the current context of high uncertainty any well-informed decision might prove very difficult to make. The risk of directing some of the fiscal support towards unviable firms/sectors would prove less costly, in terms of businesses and labour, than unplugging liquidity and other support measures too early from firms and jobs that might prove otherwise recoverable in the case of a rapid economic speedup.

The OECD report is also warning about pending risks on financial markets. Prolonged accommodative monetary policy and government business support programmes raise concerns over elevated equity valuations and risk of real estate bubbles in some countries. Credit quality declined, while the recent interest rate increase in long-term US Treasury bonds could pose a risk for emerging-countries, in the form of capital outflows.

In closed session, TUAC members also discussed a draft outline paper on “Embedding social justice in the monetary and fiscal response to COVID-19”, comparing to the policy shortcoming that followed the 2008 Global Financial Crisis and the long historical trend of rising economic inequalities, which unless addressed in a strong manner hinder the prospects for a sustainable and inclusive recovery.

The structural reform agenda

The OECD Interim Economic Outlook report pushes for structural reforms to build the recovery. The report states that the reform sequencing will be very important in ensuring that reforms deliver positive results, favouring above all “measures with a fiscal dimension”, i.e. investment in infrastructure, digital networks, transportation and energy, in order to boost aggregate demand, rather than depress it as happened after the Global Financial Crisis. Aiming to sustain consumption levels and ensure an inclusive recovery, the OECD calls also for “strong income support to the poorer households”. These might prove first positive signals of a shift in the OECD sensibility towards structural reforms tout-court.

The WG meeting was the opportunity to engage with the Economics Department of the OECD regarding the structural reform agenda on the longer term. The preparation of the OECD Going for Growth publication is signalling encouraging shifts toward more inclusive growth – suggesting that environment, social and health policies are gaining more traction in the list of reform priorities.

Taking stock of on-going OECD projects on industrial policy, productivity and telework

The WG discussed also the role of industrial policy and the revised OECD Job Strategy from 2018 in the context of the COVID-19 recovery, highlighting renewed interest across OECD countries for both horizontal and targeted industrial strategies, as well as the conceptual frameworks that the OECD is building to support governments in re-thinking their industrial policies.

A separate session discussed the human side of productivity – an OECD project culminating in a report this July. As TUAC members stressed the role of unions and collective bargaining in steering productivity objectives on re-organisation, transitions and skills advancement deserves recognition.

The OECD further presented first results of its telework survey, to which TUAC members contributed. The report will be released later this year and promises to show well how workers perceive telework and its challenges. This hopefully would lead to policy thinking around fostering good working conditions in this realm.

Engaging with G7 and G20 sherpas

The final day of the meeting was dedicated to an update on the Future of the OECD by TUAC General Secretary Pierre Habbard, including the on-going succession process at the OECD, and the updating of the Organisation’s Vision Statement.

It was followed by a roundtable with Italian and British government representatives, and the OECD Sous-sherpa on the G20 and G7 processes. On both sides, L20 and L7 unions have already started to contribute to several work streams – whenever access was given – and have released priorities (see L7). The discussion allowed to shed some light on synergies between the presidencies and highlight the OECD contributions to diverse policy issues. Unions insisted on great ambitions for both presidencies with a longer-term vision and coordination with future presidencies. They argue for decisive outcomes on labour market and economic recovery, climate in view of COP 26, and the global tax agenda.