Labour markets and inflation in the wake of the pandemic

Key takeaways

• The pandemic had a significant effect on labour markets. Working hours fell sharply almost everywhere, but the drivers of these declines varied greatly across countries, depending on whether policies to protect worker-firm relationships were in place.
• Labour markets have bounced back faster than after recent recessions, albeit unevenly. Even in countries where unemployment rates remain high, job vacancies have risen, including in the sectors hardest hit by the pandemic. Frictions are most pronounced where policy responses did not protect worker-firm relationships.
• Wages are generally rising more slowly than before the pandemic. However, there is significant dispersion across sectors. Wages are rising fastest in sectors such as information & communications where the pandemic boosted demand, and also in high-contact sectors such as recreation where labour supply has receded.
• A generalised pickup in wage growth still seems unlikely, even though some countries and sectors have seen increases. However, a retreat in globalisation could make inflation more responsive to labour market pressures.

Online appendix