[The Editors' Verdict] The Deep Scars Left by the Pandemic

Kim Kyung-soo, Professor Emeritus at Sungkyunkwan University

Since the outbreak of the novel coronavirus disease (COVID-19), the economics community has predicted the emergence of a 'deflation gap' (a term referring to a situation where actual aggregate demand falls short of total supply capacity). This is because it was expected that demand-side factors caused by income reduction would have a greater impact than supply-side factors, such as lockdowns restricting production activities. This prediction stems from the logical assumption that, just as with revenge consumption, there would not be a 100% demand substitution from sectors exposed to the pandemic to those not exposed.

Another point anticipated by academia is the deep scars left if the pandemic (global outbreak) persists. Prolonged unemployment leads to an increase in people giving up job searching, making it harder to return to the labor market. Especially, those in their 20s seeking their first job and women with heavy childcare burdens suffer greater damage. The employment trends released monthly by the Statistics Korea confirm these predictions.

From March to October, the economically active population decreased by an average of less than 300,000 compared to the same months in the previous year, and the economic activity participation rate (hereafter, EAPR)?the sum of employed and unemployed populations relative to the working-age population?declined by nearly 1%. The employment rate, which is the ratio of employed persons to the working-age population, dropped by more than 1%. For the 15-64 age group excluding those over 65, the economically active population decreased by an average of over 500,000 compared to the previous year, with the EAPR (-1.2%) and employment rate (-1.2%) worsening further. By age group, those aged 15-29 experienced the greatest damage with an EAPR decrease of -1.7% and an employment rate decrease of -1.6%. Conversely, for those aged 60 and above, both the EAPR (0.9%) and employment rate (0.7%) increased compared to the previous year.

Looking at employment numbers by age group, decreases occurred in the order of 30-39 (-198,000), 40-49 (-174,000), 20-29 (-167,000), and 50-59 (-119,000), while those aged 60 and above saw an increase (351,000). The EAPR decreased by 1% for both men and women compared to the previous year, but the employment rate decline was larger for women (-1.3%) than for men (-1.0%). Considering that women's EAPR is typically about 20% lower than men's, this indicates that employment conditions for women have become much more challenging than for men.

By industry, employment in wholesale and retail trade and accommodation and food services (-361,000) and manufacturing (-57,000) sectors faced difficulties. Considering that employment in wholesale and retail trade and accommodation and food services is about 1.3 times that of manufacturing, the extent of the damage is considerable. By occupation, the number of employed persons decreased in the order of service and sales workers (-234,000), managers, professionals, and related workers (-111,000), and clerical workers (-77,000). By employment status, among wage workers, temporary and daily workers decreased by 503,000, while among non-wage workers, self-employed persons with employees decreased by 178,000 and unpaid family workers by 41,000. Given that non-wage workers account for 25% of total employed persons, it is clear that self-employment has been directly hit by the pandemic. Although regular workers increased by 292,000, the sharp decline in temporary and daily workers, who make up 30% of wage workers, indicates that self-employment has suffered greatly and that temporary and daily workers are acting as a buffer against the employment shock.

Ultimately, the pandemic's damage is concentrated among low-income groups. This estimation is confirmed by the third-quarter Household Income and Expenditure Survey by Statistics Korea. Despite the government's supplementary budget execution, incomes in the bottom 40% declined, worsening income polarization. The pandemic has the characteristic of concentrating economic losses in specific sectors. The government should seek policy alternatives that focus support on the most affected groups. Recently, the Wall Street Journal (WSJ) published an article about people working in occupations exposed to the pandemic overcoming difficulties. In short, these are stories that have driven consumption and leisure demand among groups less affected by the pandemic. This is a point worth paying attention to.

Kyungsoo Kim, Professor Emeritus, Sungkyunkwan University