The pandemic is accelerating a shift toward more informal and precarious
With millions of jobs lost, robots on the rise, and white-collar workers
toiling largely at home, COVID-19 appears to have ushered in a new normal
in the global workplace.
But many of these developments stem from failed policy responses to
megatrends already in motion long before the pandemic struck. For at least
two decades, shifting demographics and technological upheaval have been
upending labor markets, exacerbating inequality, making jobs increasingly
precarious, and deepening economic insecurity.
The new normal, in other words, isn’t really new. A deadly virus has simply
accelerated the pace of change, with devastating consequences—especially
for developing economies, which are expected to lose at least $220 billion
in income, according to the United Nations Development Programme.
Now that the crisis is upon us, we should not waste it, as politicians like
to say. Policymakers must pursue a more dramatic course correction than
previously considered. They must sweep away flawed ideas about jobs and
seize this emergency as an opportunity to build resilient, equitable, and
This exercise requires more than a return to pre-COVID conditions. It calls
for a fundamental reappraisal of our assumptions, beginning with how we
Advanced economies—think of Germany, Japan, and the United States—are
struggling with aging populations. So are some emerging market economies,
including China. But in a majority of developing economies, the youth
population is swelling. Some of these countries, such as India, Indonesia,
and Nigeria, will approach the peak of their demographic bulge during the
next two decades, while smaller countries, such as Angola and Zambia, are
in earlier stages of the demographic transition.
A youth bulge presents an advantage only if economies can create productive jobs with rising wages.
Conventional wisdom says that a large and growing population of young
adults can provide a demographic dividend by increasing the ratio of
workers to dependent children and retirees. But this postulate must be
rethought. A youth bulge presents an advantage only if economies can create
productive jobs with rising wages. India’s youth population of 362 million,
ages 15–29, is higher than the entire population of the United States. At
17.8 percent, the unemployment rate for this cohort was three times that of
the overall working population even before the pandemic. Young people in
countries that fail the productive job test are likely to end up unemployed
or working in poor-quality jobs in the informal economy, which is neither
taxed nor monitored by governments (see Back to Basics in this issue of
Without large-scale job creation, surplus labor in developing economies
will exert downward pressure on wages and working conditions. The result
will be not only a deteriorating quality of life but also a ceiling on
economic growth. We cannot expect the middle class in developing economies
to keep expanding if young people cannot find jobs that pay middle-class
As in previous crises, young adults have been among the first affected by
the social, educational, and economic disruption. This was borne out by a
survey of more than 12,000 young people conducted across 112 countries in
April and May, when the pandemic was spawning the worst global recession
since World War II (see Picture This in this issue of F&D).
Reporting on the survey, the International Labour Organization (ILO) found
that 17 percent of previously employed people between the ages of 18 and 29
stopped working after the pandemic hit, and 42 percent reported a drop in
income. In the absence of pathways to productive and high-quality
employment, developing economies that pin their economic ambitions on a
demographic advantage are setting themselves up for disappointment.
Fast and furious
The pandemic is accelerating the advancement of technology, which was
already restructuring labor markets. For many, technology has enhanced
efficiency and enabled remote work, but for others, it has disrupted
livelihoods. Automation has clearly destroyed some jobs as robots clean
hospital floors, tollbooth operators vanish, and chatbots replace customer
service agents. Yet digital platforms have also added new and different
jobs to the economy—jobs in software programming, health care,
and—yes—pizza delivery and taxi services.
The key question is this: Whose jobs will vanish and who can access the new
forms of work?
Automation was gaining ground well before COVID-19 hit. This should come as
no surprise, especially in places where new technology triggered structural
transformation through massive employment shifts in the past—first from
farms to factories and then from factories to services.
Where the cost of deploying new technology is low and promises higher
output and faster delivery, companies replace workers with machines—as the
Luddite handloom weavers learned. Automation is gaining ground faster in
developed economies (and in China), where labor costs are relatively high
and companies have capital to spare. But developing economies are certainly
not immune. They may have a surplus of low-cost labor, but that is only one
factor in the overall cost of production.
More companies will automate as the pandemic underscores the
vulnerabilities of a human workforce and geographically dispersed global
supply chains. Some may also “reshore” production by bringing manufacturing
and service jobs back to the United States and Europe—a trend that was
emerging before COVID-19. Developing economies must brace for a triple
shock: increasing labor substitution as domestic companies automate, at
least moderate growth in foreign companies reshoring, and slowing exports
as demand remains low.
The pandemic is also fueling the platform economy. From e-commerce to the
gig economy, consumers are increasingly tapping the internet to connect
with goods and services from the safety of their homes.
The gig economy’s low barriers to entry present new employment
opportunities—and new hazards—for developing economies. The danger is that
the bulging supply of young and low-skilled workers drawn to platforms is
likely to exceed the demand for their services as data processors, customer
service representatives, and ride-hailing service drivers.
Not only will these workers frequently find themselves “gigless”—that is,
underemployed—but they will likely face downward pressure on working
conditions. Evidence from countries where an increasing share of workers
compete on gig platforms confirms that wages are getting squeezed. And the
assumption that most gig workers were previously in poor-quality informal
work doesn’t always hold. A 2015 study by Perkumpulan Prakarsa and the
JustJobs Network surveyed 205 on-demand motorbike taxi drivers working
through the online taxi-hailing applications Gojek and GrabBike. Of the
respondents who were previously employed, 51 percent had been engaged in
the formal economy before joining the gig economy.
COVID-19 is also accelerating trends in distance learning and remote work.
But these developments widen the gap between the haves and the
have-nots—between those who can and cannot afford computers and internet
access and between those who do and don’t have the skills to participate in
a digitally driven economy.
As this analysis suggests, the pandemic is driving a shift toward more
informal and precarious work among people who are just seeking to make ends
meet. Prior to the pandemic, the rise in contractual work notwithstanding, informal employment was stagnant or even declining in some countries. But
the pandemic will likely reverse this trend. These informal work
arrangements may push down unemployment in developing economies, but the
jobs are less secure and tend to be lower-paying and less productive.
Policymakers should not be fooled by the numbers. After the pandemic, a
decline in the unemployment rate should not be mistaken for economic
The ILO estimates that workers around the world lost $3.5 trillion in labor
income in the first three quarters of 2020 as the pandemic slashed their
hours on the job. From simply a health crisis, the pandemic has morphed
into both a health and an economic crisis, fostering uncertainty in the
business climate and fear among employees.
The risk, for workers, goes well beyond immediate job losses and hiring
freezes. The deeper danger is that companies will be less inclined to build
permanent workforces, relying instead on cheaper gig, temporary, or
A flexible labor market is valuable when it leads to more efficient
allocation of resources. But flexibility that flows from low-productivity
work and a decline in working conditions, as is the case in developing
economies, does more harm than good—both for workers and society.
People in informal and contractual arrangements and those who are
self-employed generally do not receive social security through an employer,
leaving them vulnerable to shocks such as from COVID-19. The rise in
informal employment also squanders precious productive potential and
reduces consumption power, circumscribing broad-based economic development.
What must policymakers do to manage these trends and soften their adverse
First, policymakers must acknowledge that relentless pursuit of economic growth will not automatically create jobs.
The priority has to be job-rich growth. This entails advancing sectors that
both employ a lot of people and raise growth capacity; for example,
infrastructure. It also means investing in increasingly productive
labor-intensive sectors and moving up the value chain—for instance, moving
from assembly to full package production of apparel or from subsistence
farming to food processing. Wage growth should align with increases in
Second, governments should reject the idea that “any job is better than
That may be true from a destitute worker’s perspective, but it makes little
sense economically. Poor-quality jobs exacerbate inequality, waste
productive potential, and reduce aggregate demand—all of which are bad for
growth. To this end, governments must resist the urge to indiscriminately
weaken labor regulations under the pretense that it’s good for business.
Appropriately formulated minimum wages, social security, and active labor
market policies—including job search assistance and apprenticeship
programs—are good for worker productivity and help smooth consumption in
times of distress.
Governments should reject the idea that “any job is better than
Third, governments should recognize that technology, like a genie freed
from its bottle, cannot be coaxed away.
But they can regulate it. This means putting public interest ahead of
commercial interest in mandating data sharing and transparency from tech
companies that run digital platforms. Workers who sign on to such labor
platforms should have access to public benefits and services. Governments
should have access to the data to facilitate evidence-based policymaking.
Enforcing competition law more stringently to curb the power of large and growing corporations is
essential. Policymakers should revisit corporate taxation, particularly for
tech companies that engage in rent seeking and labor arbitrage, to help
extend social security coverage to informal and contract workers.
Fourth, the advent of technology and changing demography in developing
economies call for investments in reforming and updating human capital
to appropriately educate and train young people so that they are more
Moreover, as the pandemic alters the economic landscape, creating
opportunities for some sectors to thrive while weakening others,
policymakers must help workers retool accordingly.
Finally, a myopic focus on boosting efficiency rather than building
resilience leaves economies vulnerable.
Government investments in health, education, public employment, and social
protection systems have all proved their worth. So have fiscal and monetary
stimulus. Although these programs can seem inefficient in good times, they
provide the necessary space for policymakers to react quickly in uncertain
Opinions expressed in articles and other materials are those of the authors; they do not necessarily represent the views of the IMF and its Executive Board, or IMF policy.