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Ekonomiskā vide - 2020 12 23
coronavirus | labor

How will the second wave of Covid-19 affect the labour market

How will the second wave of Covid-19 affect the labour market

In the forthcoming months, the second wave of Covid-19 and the imposed nation-wide restrictions will bring various challenges to the labour market. In many sectors, the number of hours worked will decline, whereas the increase in the number of the unemployed will largely depend on the scope and effectiveness of the support measures.

Nobody had any doubts that the labour market data for the third quarter would bring favourable news. During the period, the unemployment rate fell by 0.2 percentage points, although it is 2.4 percentage points higher on an annual basis.

As a result, despite the expectations, the second wave of Covid-19 and the ensuing restrictions mean that the turning point will be postponed by two quarters. The October data provided by the State Employment Agency still show a slight decline in unemployment, but there will be an upward trend in November and the following months.

Importance of the support measures

How many jobseekers there will be will largely depend on the scope of the support measures and the effectiveness of the requirements.

Due to the changes, many will become economically inactive and wait for the situation in the labour market to stabilise.

In many sectors, the number of hours worked is expected to decline. From this point of view, the current tax reform rather adds to the uncertainty. In the coming winter through to spring, entrepreneurs might remain very cautious about hiring new employees.

How high will unemployment rates rise

Given the impact of the artificially initiated crisis and the support measures, it is difficult to determine how hard the second wave will hit the labour market. Unemployment might rise to about 9.5% before it starts to decline.

Maintaining the support measures for the employees in the affected sectors, especially those related to tourism, will be key, as the recovery in these sectors will be very slow. Next year, the second quarter promises to bring about a good rebound to the economy due to vaccination and stabilisation of the economic sentiment.

Dainis Gašpuitis
SEB economist

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