But the current spread is unprecedented. “It is huge,” said Alexander Hijzen, a labor economist at the Organization for Economic Cooperation and Development.
In Germany, according to Hijzen, about one in four employees can follow short-term work programs. In France and Italy, the number rises to one or three workers or more.
“Better than unemployment”
In Europe – where it is more difficult to hire and lay off workers, employees have many protections and many are covered by collective bargaining agreements – short-term work programs have long been popular and are well known to both employers and to employees.
Kurzarbeit, the most well-known short-term work program in the region, has roots dating back a century and has often been exploited to protect jobs in Germany from the oil crisis of the 1970s.
This appears to have occurred during the recession following the 2008 financial crisis. German employment declined 1%, although economic output fell 7%, according to bank economist Berenberg Florian Hense. In the United States, where gross domestic product fell by 4%, employment decreased by 5.4% more significantly.
Some economists argue that other factors, such as how companies tabulate overtime wages and the slow pace of hirings leading to the recession, probably played a role in limiting job losses.
But there is an agreement that the German system – where the government covers between 60% and 67% of the wages per hour worked – generally serves its purpose. It is particularly useful in an economy struggling with a shortage of skilled labor and where employers want to cling to the workers they have trained.
“It’s the right kind of burden sharing between government, employers and employees,” said Hense.
Programs like Kurzarbeit and the French “chômage partiel” are suitable for the coronavirus crisis, at least in the short term. Designed to deal with a short-lived economic shock, they act as a bridge for businesses and workers until governments begin to lift blockade measures to contain the pandemic. The UK has adopted its version to deal with the current crisis and 6.3 million British workers are now enrolled in the three-month program.
This could give Europe an advantage in its recovery, allowing the region’s economies to reboot quickly and efficiently with the rebound in demand. However, problems may arise if the asset is not as robust as expected. People may need to persuade them to leave their homes to shop regularly and work from home is expected to continue for some time.
“This time a lot will depend on demand and how it will resume economic activity in general,” said Carsten Brzeski, German chief economist at the Dutch bank ING. “If it does, Germany is extremely well prepared.”
If the crisis continues longer than expected, however, the huge number of people using the programs will stretch funding to the limit. And temporary programs, such as the British variant, could lead people to move from maturity to unemployment if work doesn’t resume soon.
The German government – which expanded its program on the occasion of the coronavirus arrests – is now subsidizing wages for around 10.1 million people, according to the UBS investment bank. This is compared to 1.4 million people at the height of the global financial crisis.
In France, the government states that 11.3 million people benefit from the “chômage partipel”. Short-term work programs also cover 7.7 million Italians and 3.4 million Spaniards.
The European Commission wants countries to step up these efforts and has said that it will lend to Member States on favorable terms to finance these programs.
But Klaus Wohlrabe, chief of polls at Ifo, has warned that they can only buy time for so long. UBS estimates that short-term work programs in the euro area currently cost 1.5% of GDP and that blockages will be extended each week.
“For companies, short-term work is a way to fill a low-sales period,” Wohlrabe said in a statement. “However, if this period lasts long enough, we will also see the jobs cut completely.”
The United States is watching
The federal government he wants more companies to take advantage of this option and encourages its use by including funding in the $ 2 trillion stimulus package passed last month. But so far, the number of companies participating in these programs seems limited.
Only 62,300 Americans received job-sharing benefits for the week ending April 11, according to the latest data from the United States Department of Labor.
Betsey Stevenson, a professor of economics at the University of Michigan and chief economist of the Department of Labor under ex-President Barack Obama, thinks that part of it has to do with awareness; companies in America are less likely to know that such programs exist than companies in Europe.
But U.S. plans aren’t designed for when the job is completely sold out, Stevenson noted. In Germany, workers can receive up to two thirds of their wages even if they don’t work at all.
Sharing work in the United States could see greater use as states begin to reopen their economies. In such an environment, it makes sense to encourage employers to bring back their entire workforce, including to cut hours, Stevenson said.
“That permanent destruction of the relationship between their employer, [the employee] and work – this can cause long-term unemployment, people leaving the workforce, “he said.[It] it can lead to big problems. ”
Countries that can keep a lid on unemployment during the pandemic could enjoy stronger economic rebounds than places where workers are unable to maintain ties with their employers. In Europe, short-term work programs could be the deciding factor if they do not become too large to manage.
“It is one reason why we think a long protracted recession is not a European deal and that Europe could be better than the United States,” said Hense of Berenberg. “Let’s see.”
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