Manufacturers fare better than many service providers in COVID-19 economy

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The coronavirus has dealt a savage blow to the world economy, idling workers and bankrupting businesses around the globe.

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But months into the crisis, a clear divide between survivors and casualties is emerging. Countries, workers and industries that rely on making stuff — from computers to furniture to toys — are getting by, or even thriving, amid the economic maelstrom.

Meanwhile, those who provide the sort of face-to-face services that people avoid out of fear of infection — traveling, eating out, going to the movies and some child care — are struggling. Services that don't require physical proximity — such as many financial services, software and telecommunications — have been less badly hit, as have construction and farming.

This divide between manufacturing and services means the pain has fallen especially heavily on female and immigrant workers and on economies with large informal sectors or with heavy exposure to tourism, entertainment and travel.

That divide is especially alarming given this autumn's spike in infections in much of the West, suggesting workers, companies and countries reliant on services face a long, painful recovery that may only arrive when a Covid-19 vaccine comes into widespread use.

Historic divide

According to growth forecasts by the International Monetary Fund, the world's economies are diverging this year more sharply than ever before. Much of the difference seems to come down to the economic structure countries had going into the crisis, rather than their handling of the virus.

Manufacturing and export-heavy economies in Asia have performed well, while those with large tourism sectors have suffered, even where the pandemic had been brought under control.

For instance, Thailand has reported just a handful of local cases in the past three months, but relies heavily on tourism and has suffered. Taiwan, on the other hand, is a major exporter of computer components and electrical machinery.

Haves and Have Nots

Countries, workers and industries that rely on making stuff — from computers to furniture to toys — are getting by, or even thriving, amid the economic maelstrom. (iStock)

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Factories have largely recovered from the nationwide lockdowns some countries imposed in the spring, while trade with China — which produces key inputs for many manufacturers — has recovered.

But face-to-face services are still in the doldrums. For instance, in the U.K., industrial production was just 6% lower in August than in February, but services output was down 9.6%.

In September, global car production marked its biggest jump in production in a decade, as consumers avoided public transport…

…but travel and entertainment remain depressed.

That is hurting jobs…

…as well as the balance of payments for some countries highly dependent on tourism.

Women’s Work

The fall in employment in the three months through June from the same period a year earlier was larger for women in almost all of the countries surveyed by the International Labor Organization. (iStock) (iStock)

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In a reversal of what happened in the wake of the global financial crisis, women have suffered larger job losses this time, in part because they are heavily represented in face-to-face services jobs. For economists, this is one of the big changes of the current recession, with men having suffered more job losses than women in each of the six downturns recorded in the U.S. since 1970.

The fall in employment in the three months through June from the same period a year earlier was larger for women in almost all of the countries surveyed by the International Labor Organization.

In the U.S., employment in leisure and hospitality recorded the largest fall in September since early this year, a sign that the new spike in infections is still hurting female employment.

Reverse Migration

Immigrants have been especially hard hit by the closure of restaurants, bars and other businesses that involve face-to-face contact. (Photo by Alexi Rosenfeld/Getty Images)

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Immigrants have been especially hard hit by the closure of restaurants, bars and other businesses that involve face-to-face contact. Migrants account for a larger share of employment in the accommodation and food-services industries than they do in the workforce as a whole, especially in Europe. Without those jobs, many were forced to return to their home countries.

In the Shadows

In many parts of the world, but especially the poorest countries, large shares of the workforce make their living outside of formal employment. Over two billion people work in the informal economy globally, according to the International Labor Organization, including over 80% of workers in populous countries like India, Indonesia and Nigeria.

Jobs in the informal sector are often in services, from cleaning houses to washing dishes in restaurants. Many of these jobs have fallen victim to the downturn.

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