IMF urges governments to sustain wage subsidies until COVID-19 eases

Governments that can afford to sustain job retention schemes such as wage subsidies should keep them in place until the pandemic eases “markedly”, which would help avoid periods of socially costly unemployment and mitigate the negative impact on more disadvantaged workers, said the IMF.

Findings of its analysis suggest that “the use of retention policies could be linked to the duration and intensity of the pandemic”, said the IMF, according to Australian Associated Press.

“The powerful effects of job retention policies in avoiding deeper and more protracted employment deterioration from the pandemic suggest that such measures should be prioritised,” IMF added.

Uncertainties about the pandemic and the situation forward means that the phase-out of such support measures will be complicated, and require careful monitoring of the pandemic, it said. This will include the rollout of vaccines and the judgement of an economy’s ability to sustain a cut in support. 

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Policies that target affected worker groups could also be designed, such as increasing wage subsidies for the youth or lower-skilled to discourage businesses from retrenching such workers, it highlighted. 

“While it is not uncommon for workers to reallocate across sectors and occupations after spells of unemployment, such reallocation is costly,” it said, adding that workers who found re-employment in a different job sector suffer a setback of earnings of about 15%, which includes personal and social reallocation costs.