Labor demand under COVID-19 pandemic in Norway

Zhiyang Jia,
Senior Researcher,
Research Department, Statistics Norway,

The world economy takes a huge hit from the COVID-19 pandemic since March 2020. The decline in economic activity and constraints on people’s movements have far-reaching impacts worldwide. Norway is no exception. The mainland GDP shrank by 11% from February to April 2020. The pandemic also disrupted the labor market severely and suddenly, leading to a massive rise in unemployment. In May 2020, there are 120,000 fewer jobs than the same month in 2019, which amounts to a drop of over 4%. While a large part of this decline comes from involuntary job separations in terms of temporary or permanent layoffs, there is also a sharp drop in new vacancies, indicating that the pandemic has also led to a collapse in job creation.

From late February to June in 2020, the total number of new vacancy postings listed in the Norwegian Labor and Welfare Administration job database declined by around 27% compared with the same period in 2019. The magnitude of the drop in new vacancies in Norway is of similar size to what was found in Japan (30%), but somewhat smaller than those in Sweden (40%) and the US (44%).

The comparison between Norway and Sweden is particularly interesting. The initial exposures to the COVID-19 for these two countries are about the same. Similar government programs are implemented to soften the impact of the pandemic on the economy and labor markets as well. However, while Norway implemented very strict non-pharmaceutical interventions (NPIs), Sweden has opted for much lighter restrictions where most businesses were kept open with certain proximity restrictions. The lower magnitude in labor demand drop in Norway compared with Sweden casts doubt on the claim that stricter NPIs will inevitably lead to greater economic losses, as believed by many.

The drop in new vacancies started around the same time as the Oslo stock market index’s plunge when there was still no confirmed COVID-19 case in Norway. That was about two weeks before the total lockdown in Norway which led to a spike in the unemployment insurance claims. The timing of the start of collapse is consistent with the idea that uncertainty in economic outlook due to the COVID-19 pandemic is an important cause for firms to pause their investment and hiring. After the initial dip, the number of new vacancies seems to stabilize and show some signs of recovery already in May and June 2020. However, the number is still lower than that of the same period in 2019. Interestingly, there seem to be no additional drops in vacancy postings of similar magnitude when the second and third wave of coronavirus hits Norway in November 2020 and March 2021.

The deterioration in labor demand is quite broad. It is observed almost at the same time in all counties in Norway, regardless of the initial spread of the virus. However, the size of the drop seems to be positively correlated to the severity of the pandemic measured by the number of all confirmed cases. Similarly, the COVID-19 pandemic affects almost all industries and all occupations. Based on these observed empirical patterns, we see that the lockdown and social distancing policy are not the only cause of the dip in labor demand. However, some areas (industries) are hit harder than others.

The pandemic has led to a great shortage of seasonal workers which led to an increase in the new vacancies in the agriculture sector. The oil and gas industry was among the industries that experienced the largest drop, as it was hit particularly hard due to significant oversupply as the global economy slows down due to the pandemic. Industries that rely on close interaction between people, including the hospitality sector, the personal service sector, and the retail sector, were not able to continue ordinary business during the pandemic and therefore experienced a dramatic drop in demand.

The pandemic also had a rather uneven impact on the demand on different groups of workers. Historically, unskilled young workers are disproportionately disadvantaged in many ways during economic downturns, but this recession has been particularly acute. There are fewer vacancies that they are qualified for due to the collapse of new vacancies. And at the same time there are more job applicants to compete with due to the jump in involuntary job separations. Unfortunately, the recovery observed in May and June 2020 is mostly observed for jobs that require high education and previous work experience. The accumulated number of vacancies loss in the “youth-friendly” sectors remains high during the reopening phases. Unskilled young workers are facing the toughest labor market in generations. This may very likely induce long-lasting costs for the economy, as poor early labor market experience often results in persistent negative effects for young workers. Measures that strengthen the labor market opportunities for young workers are called for, both in terms of providing young workers better opportunities for continued education and qualification training and in terms of encouraging businesses to employ more young workers.


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