Coronavirus Has Idled Millions of European Workers. Governments Are Picking Up the Tab

At least 18 million European workers have been idled over the past month, according to government figures, as the new coronavirus pandemic cuts an ever-widening swath through the world’s job markets and prompts governments to spend hundreds of billions of dollars to support furloughed and laid-off workers.

Recent figures from a number of European countries reveal the scale of the damage to labor markets, with almost half of French private-sector workers furloughed and a third of all Irish workers without a job.

The European data add to figures in the U.S. showing that 22 million Americans have lost their jobs in the past four weeks.

Even as Western governments plan to tentatively reopen their economies after weeks under lockdowns, the possibility of future outbreaks means a resumption of economic activity may be halting, possibly keeping the number of unemployed and furloughed workers high.

In Europe, the cost to the state of supporting workers is already huge.

European governments have tried to blunt the economic impact of the pandemic and prevent mass layoffs with programs that cover a large chunk of salaries for furloughed workers — those on a company-ordered leave of absence — as long as businesses keep them on their books. The cost of such programs could reach EUR135 billion ($146.66 billion) in Germany, France and Spain alone.

To help cover the cost, European Union leaders are expected to approve a EUR100 billion loan package for member governments at a meeting on Thursday.

But even with extensive government support, job losses are expected to keep mounting. According to management consulting firm McKinsey & Co., up to 59 million jobs in the EU and the U.K. are at risk, or 26% of total employment. The consulting firm estimates that a similar number of jobs — 54 million — are at risk in the U.S.

Indeed, there are signs that job losses are already surging in Europe.

In the U.K., the government said Monday that 1.4 million people had applied for unemployment benefits in March, or four times the average monthly figure over the previous 12 months.

Even in Sweden, where the government has relied on voluntary social distancing rather than mandatory lockdowns, jobs are being lost at a rapid rate. The country’s statistics agency said Tuesday that there were 76,000 fewer people working in March than a year ago.

Those job losses would be even larger without government aid to pay wages.

Unlike Germany and Italy, the U.K. didn’t have state-supported work initiatives — known as short-time programs — in place ahead of the outbreak. But it has rushed to launch a program that grants GBP2,500 ($3,100) a worker each month — or up to 80% of his or her pay — to businesses that would otherwise have to slash their payrolls.

The program went live Monday, attracting applications from 140,000 businesses on its first day. U.K. Chancellor of the Exchequer Rishi Sunak said the program will safeguard more than a million jobs.

Others say the program will end up covering even more workers. The Resolution Foundation, a nonpartisan think tank that focuses on work, estimates that the program could pay the wages of 8.3 million workers at its peak, preventing a possible rise in unemployment to a “catastrophic” 11.7 million.

James Timpson, chief executive of Timpson Group PLC, a British main-street staple with more than 2,000 stores offering services including shoe repairs and key-cutting, said 5,300 of his company’s 5,500 employees are on furlough. The wage-subsidy program means the company expects everyone now at home can stay on full pay until the lockdown eases and stores can reopen, he said.

“The chancellor is a bit like the surgeon when you’re going in for a lifesaving operation who says he’s going to make sure you’re alive when you wake up,” Mr. Timpson said.

The French government said Friday that it was helping 785,000 businesses pay the wages of 9.6 million workers, almost half the workers in the private sector. In Italy, 250,000 businesses employing four million workers had applied for help by April 7.

In Germany, the Federal Labor Agency had received requests from 725,000 companies to use its Kurzarbeit program, as of April 15. The metalworkers industry association, which includes automobile makers, estimates 1.2 million workers in the industry are covered, with another million expected to join shortly.

Ireland is closer to the U.S. in its labor laws than much of Europe, and it has seen a surge in unemployment despite launching a short-time work program. The country’s government said Monday that while 46,000 businesses had applied for help in paying wages, 584,000 were receiving a supplementary coronavirus unemployment benefit. That means 40% of Ireland’s workforce — either jobless or in state-backed short-time programs — is being helped by the government.

“Over a million people are receiving some sort of state income support — a situation unparalleled in our nation’s history,” said Regina Doherty, minister for employment.

Through its Covid-19 Pandemic Unemployment Payment, the government pays EUR350 a week, well above the usual unemployment benefit.

“The enormous surge in Covid-19 claims suggests the generous terms of the benefit has created a financial incentive for many workers — particularly part-time — to leave work voluntarily, accentuating the damage to the Irish labor market,” said Conall Mac Coille, chief economist at Davys, an Irish securities firm.

The cost of these programs is huge. According to the U.K’s Office for Budget Responsibility, if 8.3 million workers are supported by the government for three months, the cost will total GBP42 billion ($52.22 billion). That isn’t far short of government borrowing in a normal year, contributing to a surge in government debt that is unprecedented in peacetime.

But however much governments spend, some jobs — such as in the travel sector or in the restaurant industry — are likely to be lost for good.

“A lot of this depends on whether there are long-term changes in consumer behavior or not,” said Susan Lund, a partner at McKinsey in Washington, D.C. “How long will it take before people are comfortable with staying in hotels. There will be a structural shift.”
Source: Dow Jones