Unemployment in 2022 to Surpass Pre-Pandemic Levels: OECD

As mentioned in the OECD Employment Outlook 2021, in April 2020 the unemployment rate in OECD countries reached 8.8 percent, erasing 10 years of improvement since the global financial crisis. Despite a rapid decline in the six months that followed, primarily driven by the return to work of those on temporary layoff, progress has stalled due to successive waves of the virus and the measures taken to contain it. In May 2021, the average unemployment rate in the OECD remained at 6.6 percent, with 8 million more unemployed than before the pandemic.

Since the onset of the COVID-19 crisis, Mexico experienced one of the most significant drops in employment in the entire OECD. By mid-2020, its employment rate was 61.6 percent, 12 percent below its 2019 average. During the same period, the OECD average employment rate fell 5 percent. The organization mentions that the situation in Mexico is different. In 2020, Mexico had to make the difficult decision to reduce the budget for both labor market services and employment activation policies to redirect spending to high-priority issues and face the health crisis caused by COVID-19.

In February 2020, just before the onset of the pandemic, the seasonally adjusted unemployment rate in Mexico was 3.6 percent. By June of last year, at the peak of the crisis, it jumped to 5.5 percent. By May 2021, the rate stood at 4.2 percent, and projections suggest that in 4Q2022 it will remain 0.5 points higher than before the pandemic.

Countries responded quickly to the COVID-19 crisis by adjusting and strengthening public employment services and active employment policies. Mexico was the only country without a universal job retention scheme. As such, unemployment led to one of the highest drops in household income within the OECD. Between the last quarter of 2019 and the second quarter of 2020, in the absence of a comprehensive safety net, gross disposable income fell by almost 11 percent in Mexico, one of the most significant declines observed in the OECD.

While in many countries in the EU lost work hours are often explained by reductions in hours worked by people who remained employed, in Mexico this adjustment was mainly channeled through unemployment, which accounted for more than half of the hours not worked in 2020. The initial impact of the pandemic in Mexico caused a drastic reduction in total hours worked (38 percent between January and April 2020).

After a gradual recovery, the second wave of infections generated another, more limited, drop in early 2021. According to the most recent statistics available, hours worked in Mexico in March 2021 were still almost 10 percent lower than before the crisis. 

The effect was particularly dramatic among young Mexicans. In the second quarter of 2020, for example, the decline in hours worked by age group 15-24 was 85 percent, explained by unemployment. In contrast, less than half of the decrease in hours worked by the 25+ population was attributed to unemployment during the same period, likely due to young workers having less stable contracts and in sectors more affected by the COVID-19 crisis.