“We must look beyond the aggregate numbers to understand the full effects of the pandemic” - Deputy Governor, Sharon Donnery

• Labour prospects of the young, females and those with lower education levels have been particularly affected by the pandemic
• Despite the severe employment losses, this has not been reflected in widespread income shocks as State supports have played a significant role
• Savings have reached a record high, understanding if and how savings are spent is important for domestic demand, jobs, and inflation

Speaking at the Whitaker Institute, NUI Galway today (30 March 2021), Deputy Governor, Central Banking, Sharon Donnery thanked the President, Professor Ciarán Ó’hÓgartaigh, for the opportunity to speak virtually with students, postgraduates and faculty members about the effects of COVID-19 on employment, incomes and savings, and the importance of looking beyond the aggregate numbers to understand the full effects of the pandemic.

Ms Donnery described the uneven labour market impacts from the pandemic, where the young, female and those with lower education levels have been particularly affected. She noted that being out of work for long periods can discourage workers, and lead to dropping out of the labour force. These effects are important to keep in mind as we emerge from the pandemic, for individual welfare, long term distributional effects and future economic growth prospects.

Referring to the potential effects of COVID-19 on gender gaps in employment and wages, Ms Donnery said it is imperative any structural changes in how we work does not impact women’s long run labour market outcomes.

Referring to the role of the State supports on incomes, the Deputy Governor noted that while the effects on employment have been uneven, the supports have meant that the effect on incomes has been considerably moderated, “Despite the severe employment losses, this has not been reflected in widespread income shocks as State supports have played a significant role.”

On the different effects of the pandemic on households, Ms Donnery said while many lost their jobs, and the incomes of many thousands more have been supported by the State, others have been saving. Ms Donnery noted the importance of understanding if and how these excess pandemic savings are spent for domestic demand, jobs, and inflation.

The analysis presented on savings drew on an Economic Letter published today [30 March 2021] entitled ‘Saving during the pandemic: waiting out the storm?’ by Reamonn Lydon and Tara McIndoe-Calder of the Central Bank. The Economic Letter hypothesises if half of the excess pandemic savings accumulated to date are spent, it could add up to 5 per cent (or €5 billion) to consumer spending over time, providing a stimulus to the economy.

Looking ahead, Ms Donnery said that unfortunately job losses and firm closures as a result from the pandemic are likely. A broad range of labour market policies that help provide a pathway to viable and rewarding employment will be important considerations as the economy recovers.

Concluding, Ms Donnery referred to the capacity of policy to respond counter cyclically to the pandemic and how that mitigated the worst of the crisis. Policy support will need to be maintained over the short-term in order to stabilise the economy, and as the economy re-opens any ongoing current expenditure support should be targeted – in particular at getting people back to work, and temporary.

Ms Donnery emphasised that as we emerge from the current crisis we must consider the long-term implications of the pandemic and our policy actions. “We must look beyond the aggregates, to consider the effects of the pandemic across different sectors and groups in our society so together we can work to minimise costly and damaging scarring effects”.