Accessibility links

Breaking News

As US Unemployment Soars, Wage Subsidies Enable European Workers to Keep their Jobs

FILE - A worker wears a protective mask at the Volkswagen assembly line after VW re-started Europe's largest car factory after a coronavirus shutdown, in Wolfsburg, Germany, April 27, 2020.

Nearly two months into an unprecedented global economic downturn, the U.S. unemployment rate has rocketed to 14.7%, far outpacing Europe and other developed economies like Japan, the United Kingdom.

The effects of the coronavirus have marked a sharp reversal for the US, which in the years prior to the spread of the COVID-19 pandemic was enjoying one of the strongest job markets in the developed world. Just a few months ago, the national unemployment rate was 3.5%, the lowest in 50 years and far below the average rate of 6.2% in the European Union.

The jobs report released by the U.S. Bureau of Labor Statistics on Friday morning showed that the U.S. lost 20.5 million jobs in the one-month period ending in mid-April, a stunning figure without precedent in the country’s economic history. The job losses were spread across industries, with the leisure and hospitality industries showing the largest declines.

The release from the BLS comes just one day after the Department of Labor reported that an additional 3.2 million American had filed unemployment insurance claims in the previous week, bringing the total in the seven weeks since virus-related lockdowns began to 33.5 million people.

The number of Americans receiving unemployment benefits fluctuates, as not everyone who applied for them in previous weeks has their claims accepted, and others find new employment. The Labor Department also tracks continuing claims, the number of people currently receiving benefits. That number, which is reported a week later than the data on initial claims, rose to 22.6 million in the week ending April 25, the highest on record.

In Europe, by contrast, the average unemployment rate has jumped far less dramatically, and is expected to rise to about 9.5% in 2020, according to projections released Wednesday by the European Commission.

To be sure, Europe will face a severe economic downturn as a result of the pandemic. This week, the European Commission’s Spring 2020 Economic Forecast predicted a “deep and uneven recession” and “an uncertain recovery.” Some countries, like Italy, Greece, and Spain, which already were facing double-digit unemployment before the pandemic, will see rates spike into the high teens, according to the report.

The stark contrast between the unemployment figures in the U.S. and those in most European countries reflects the very different policy choices made by lawmakers in Washington by those across Europe. By and large, governments across Europe have been subsidizing the wages of employees of private companies, in some cases effectively paying them to stay home.

“European governments are choosing to use their unemployment funds to keep workers attached to the firms that they're working for through what are known as work-sharing, or short-term compensation programs,” said Robert E. Scott, senior economist and director of trade and manufacturing policy research at the Economic Policy Institute in Washington.

“That means that workers keep the benefits that they have associated with those jobs,” he said. “But it also, more importantly, keeps the workers attached to the firm and not unemployed.”

These programs serve two main purposes. The most immediate is that they guarantee that millions of people who could face financial disaster if they lost their stream of income are able to remain solvent. In the long term, the programs are designed to maintain the connection between workers and employers, making it easier and more likely for businesses to start back up once the crisis is past.

In France, for example, a chômage partiel program, which translates as “partial unemployment,” has more than half of private sector workers receiving government-subsidized paychecks despite the fact that they are either not working at all or are working a dramatically reduced schedule.

FILE - Workers, wearing face masks, are seen near the assembly line of Renault ZOE cars, as the French carmaker ramps up production with new security and health measures, in Flins, France, May 6, 2020.
FILE - Workers, wearing face masks, are seen near the assembly line of Renault ZOE cars, as the French carmaker ramps up production with new security and health measures, in Flins, France, May 6, 2020.

In Germany, the government has activated an existing program called Kurzarbeit, which translates as “short-term work,” to cover up to two-thirds of workers’ salaries. The German program is a longstanding one that has helped the country weather economic downfalls in the past.

Similar ad hoc measures have been put in place across the continent, with governments covering, in some cases, more than 80% of wages.

In the United States, lawmakers attempted to create a similar program through the Paycheck Protection Program, which was created by the Coronavirus Aid, Relief, and Economic Security Act. The $669 billion effort was intended to provide forgivable loans to businesses that used the funds to keep their employees on the payroll.

The rollout of the PPP, however, was rocky. Many businesses were unable to access funding in a timely manner, some still haven’t received the funds they were promised, and hundreds of millions of dollars went to large public companies that were not intended to benefit from the program.

Lawmakers have indicated that additional coronavirus relief packages will be considered in the U.S., but even if that forestalls future unemployment claims, the large surge in Americans out of work will likely have undesirable consequences for the economy when a recovery begins.

“The macroeconomic benefits of having a short-term compensation program, such as the one they have in Germany, or even in the United Kingdom or Canada, are that if you keep income flowing to workers, that means they can pay for food, they can pay for rent, they don't build up large debts during the shutdown,” Scott said. “And so, if and when the economy restarts and at some point, it will restart, those consumers spending will recover much more quickly than it will in the United States.”