COVID-19 hits lower paid harder, data show

The COVID-19 pandemic and subsequent restrictions on activity have disproportionately affected workers in lower paid occupations.

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Between February and May 2020, one in six workers in the lowest-earning quintile of occupations were estimated to have lost employment (not including workers on JobKeeper as they are still counted as employed).

"Of the net loss of 862,000 workers between February and May, around 39 per cent were in six occupations in the lowest-earning quintile alone.”

In contrast, employment in the highest-earning quintile of occupations increased by 1.8 per cent over the same period.

More generally, the lower the earnings of an occupation group, the larger the employment losses. Employment in the second-highest earning occupation quintile fell 3.4 per cent between February and May, followed by the middle (-4.2 per cent), and second lowest (-6.1 per cent) quintiles.

Of the net loss of 862,000 workers between February and May, around 39 per cent were in six occupations in the lowest-earning quintile alone: waiters, sales assistants, bar attendants and baristas, kitchenhands, drivers and beauty therapists. The functions of these occupations were severely limited by restrictions and physical distancing. Chefs and sports coaches (second-lowest), retail managers (middle), and electricians (second-highest) also recorded net employment losses exceeding 20,000 between February and May.

According to the 2016 Census, 54 per cent of all employed young people (aged 15-24) work in the lowest earning occupations, making up almost a third of the group. Young workers’ overrepresentation in occupations affected by restrictions, as well as their lower likelihood of JobKeeper eligibility, meant they accounted for 37 per cent of employment losses between February and May despite making up less than 15 per cent of the pre-COVID workforce.

Meanwhile, the concentration of employment losses in the younger, lower income workforce who are less likely to own a home has been a contributing factor to the resilience of the housing market, on top of ultra-low rates and significant government incentives.

The recovery so far

By November, employment was rising across all occupation quintiles, with restrictions a lot easier and activity returning towards normal levels (albeit with some bumps along the way).

Employment in the highest-earning occupation group was up 3.2 per cent on its February level (pre-pandemic), although it did decline a little between August and November. Employment in the second-highest quintile exceeded its pre-pandemic level for the first time, by 1.8 per cent. Loosened restrictions also saw employment in the lowest-earning occupations rebound quickly, regaining 86 per cent of COVID losses to be 2.3 per cent below the pre-pandemic level by November.

But employment in the middle and second-lowest quintiles has been slower to pick up. In fact, employment declined further in both groups between May and August, before starting to improve over the three months to November. Employment remains 2.5 per cent and 4.4 per cent below pre-pandemic levels respectively and the lowest quintile has overtaken them.

Exacerbating longer-run trends

While total employment could return to its pre-pandemic level from as early as the first quarter of 2021, it is possible it could take quite a bit longer for this to happen for the middle and second-lowest earning occupation groups. This is particularly relevant given the experience during the global financial crisis (GFC) where employment in these two quintiles deteriorated through 2009 while other quintiles saw employment rise after a short-lived slowdown.

Part of this could be due to a net outflow of workers from the middle and second-lowest earning occupation groups into other quintiles. For example, workers from these two quintiles who lost employment during COVID may have taken an available job in an occupation in the lowest earning quintile or may have been promoted or taken a job in a higher earning quintile.

ANZ Research has previously highlighted the risks to young workers during COVID-19. As well as the larger initial hit to employment, evidence shows longer-term scarring effects for new labour market entrants during recessions. This is why policies that aim to improve near-term employment prospects for younger workers are so important, such as the JobMaker hiring credit, which Treasury estimates will generate an additional 45,000 jobs for 16–35 year olds, as well as wage subsidies for businesses hiring new apprentices and trainees.

But workers in the middle and second-lowest quintiles may suffer more hardship in the short-term from loss of employment and income. They tend to be older (so less likely to be able to move back in with parents, for example) and more likely to have dependent children than workers in the lowest quintile.

JobKeeper cut

The introduction of the COVID-19 supplement to JobSeeker would have helped cushion the blow earlier in the pandemic but the supplement was cut to $A150 per fortnight from 1 January and there has been no confirmation of whether and by how much the base JobSeeker rate will be increased after 31 March.

The relatively sluggish employment recovery in the middle and second-lowest quintiles from the COVID shock comes on top of a longer-term downward trend in employment shares (of total employment) of these two groups. Instead, employment shares have been rising for the top two quintiles and fairly steady for the lowest quintile. This appears largely due to the relative decline in demand for lower skilled, routine labour in favour of higher skilled, non-routine labour.

This is not a bad thing in itself. Indeed, we want a growing concentration of higher income jobs in the Australian labour market. But it does leave some workers vulnerable to changes in skills demand, particularly due to technological change.

For example, employment has been flat or falling for years for some of the larger occupations in the middle and second-lowest quintiles such as bookkeepers (routine, cognitive) and earthmoving plant operators (routine, manual). This is why participation in further education and training to reduce skills mismatches is so important.

The short-term and potential longer-term effects of the pandemic may mean there’s now a more urgent need to support affected workers into further training and upskilling. For example, future demand for retail managers, the largest employing occupation in the middle quintile, may be reduced by the structural upward shift in online spending during COVID-19 (on top of the more gradual rise over prior years). In 2020, the federal government partnered with state and territory governments to establish an $A1 billion JobTrainer fund to provide up to 320,000 free or low-fee training places in areas of identified skills need for young people and the unemployed.

But participation in further education and training tends to be lower for workers who are older, have lower education levels or are in lower skilled occupations compared with younger, higher educated, higher skilled workers. An Australian Bureau of Statistics survey from 2016-17 shows almost half of people with a Bachelor degree or above participated in formal or non-formal training compared with less than 38 per cent of those with lower qualifications.

So although the JobTrainer fund is an important part of the COVID-19 recovery support package, it is not a panacea. While it reduces the cost barrier to further education and training, there are other barriers (such as time and information) and it does not cater for workers who are underemployed (in terms of quality or quantity of work) or at risk of losing work - although there are some previous policies that do, such as the Skills and Training Incentive.

The good news

There is at least one positive sign for workers in the middle and second-lowest earning occupation groups who have lost employment due to the pandemic: Job vacancies for these groups have just returned to positive annual growth in November of around 2 per cent.

While still a fair way behind vacancies for the lowest earning occupations (which initially needed to get a lot more people back into employment), it does signal that we could see a stronger recovery over coming quarters for the middle and second-lowest quintiles, particularly if vacancy growth continues to accelerate.

As ANZ Research has flagged, vacancies will need to exceed pre-pandemic levels for some time to entrench the labour market recovery and reduce underutilisation. It seems reasonable this would apply to occupation group-specific vacancies as well as overall vacancies, particularly those groups that still have ground to make up.

Uneven market recovery

Overall employment could return to its pre-pandemic level from as early as the first quarter of 2021. This would be a much faster recovery than ANZ Research was expecting, even late last year. But if the employment recovery for the middle and second-lowest quintiles continues to lag, this would not only impose hardships on affected workers and households and contribute to inequality, but it could also have macro-level effects.

The Reserve Bank of Australia (RBA) has confirmed bringing down the unemployment rate is an “important national priority” and getting it sustainably below the pre-COVID rate of around 5 per cent is necessary to achieve higher wage growth and inflation.

But if demand for labour in occupations in the middle and second-lowest quintiles does not pick up materially over the next few quarters (without workers being able to find jobs in higher quintiles), this could leave many workers unemployed or underemployed, preventing underutilisation from falling as quickly as it would otherwise. This scenario could also mean a higher long-term unemployment rate.

A return to positive job vacancy growth for these two occupation groups in November suggests a stronger recovery in 2021 but given there are still 178,000 fewer workers in these groups compared with pre-pandemic, ANZ Research think vacancies will need to strengthen further before it can be sure.

Either way, the disproportionate shock from the pandemic, added to the longer-term challenges, emphasises the importance of the relevant policies in place, such as the JobTrainer fund. But the shock also highlights the need to further reduce barriers to education and training and upskilling for these workers at risk.

Catherine Birch is Senior Economist at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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