The spread of the COVID-19 virus across countries has prompted many governments to introduce unprecedented measures to contain the pandemic. These have led to many businesses being shut down temporarily and widespread restrictions on travel and mobility.

This note investigates the financial vulnerability of non-financial firms associated with the confinement measures introduced in most economies to tackle the COVID-19 pandemic. Based on empirical simulations, it evaluates the extent to which firms may run into a liquidity crisis and discusses the immediate steps that governments can take to reduce the risks and depth of such crisis, ensuring that it does not turn into a solvency crisis.

Amid an extended period of accommodative monetary policy, the very low cost of borrowing has contributed to unprecedented sovereign and corporate debt issuance over the past decade, and also elevated securities market valuations. Prior to the COVID-19 crisis, some equity market valuations were near peak levels, while well over USD 10 trillion of bonds were trading at negative yields. In addition, corporate leverage is elevated, particularly in non-investment grade corporates in advanced and emerging-market economies. Moreover, while the global financial system is stronger due to G20 financial reforms, weak asset quality and anaemic performance of many banking sectors, as well as growing risks in market‑based finance, have given rise to emerging vulnerabilities that amplified stress amid the impact of the pandemic. As a result, governments and businesses entered the COVID-19 crisis with very low buffers to guard against shocks.

This note provides estimates of the share of non-standard workers that are particularly vulnerable to the loss of income or job as a result of the widespread shutdown in economic activity due to COVID‑19 containment measures. The focus is on non-standard workers, given that they often have less access to social protection and to job retention schemes than regular workers. The changing nature of work has been associated with a gradual increase over time in the share of non-standard forms of employment. The note discusses what policies can do, and what policy actions governments have taken, to support vulnerable workers during the COVID-19 crisis. This note is based on OECD (2020a). The key messages are summarised in Box 2.4.

This note analyses the roles of job-preserving measures, including short-time work schemes, and the unemployment insurance system, in supporting workers’ income and ensuring that employment rapidly rebounds as COVID-19-related shutdowns of non-essential activities are eased. Given large uncertainty about the longer-term consequences of the COVID-19 crisis for the reallocation of resources across industries and firms, the challenge is to preserve jobs that are viable in the medium term while allowing workers in distressed firms and industries to move to those with better growth prospects. Against this background, the note outlines a number of policy options to balance job preservation with reallocation by adjusting the parameters of existing policies as the COVID-19 crisis evolves.