Europe's Economy Was Hit Hard Too, But Jobs Didn't Disappear Like In The U.S.

Apr 23, 2020
Originally published on April 23, 2020 1:37 pm

When the British economy ground to a halt a few weeks ago, Reda Maher suddenly found himself among the ranks of the unemployed, alongside untold millions of other people around the world.

But unlike many others, Maher can rest easy, knowing that money will keep flowing into his bank account until he's called back to work.

"I woke up a couple of hours later than I normally would. I won't lie," Maher said one afternoon earlier this month. "I took a nice long masked and gloved walk. I've got a remote personal training like fitness session in about 20 minutes."

The United Kingdom recently began paying 80% of the salaries of workers laid off because of the coronavirus pandemic. The government caps the pay at about $3,000 a month, but many employers, including the London-based video streaming service where Maher works, add to what the government hands out.

Maher also doesn't need to worry about being left without health care coverage, thanks to Britain's National Health Service.

Across Europe and in Canada, governments are easing the plight of workers idled because of the coronavirus pandemic by essentially paying part of their salaries, says Gabriel Zucman, a professor of economics at the University of California, Berkeley.

"What it means is that people remain on the books. ... They keep receiving their salaries," Zucman says. "And when social distancing ends, they will just return to work, as if they had been on a long, government-paid leave."

It's much more humane than in the United States, where some 26 million workers have lost their jobs over the past five weeks, Zucman says. Under the American system, workers are typically fired. They file for unemployment benefits and have to look for new work, he says. Many risk losing their health insurance benefits altogether.

Even if they are eventually rehired — and there's no guarantee of that — the experience is brutal and anxiety-ridden, Zucman and fellow Berkeley economist Emmanuel Saez wrote in a recent op-ed in The New York Times.

The European systems are also less disruptive for businesses, who know that when the current crisis ends, they can simply call their employees back to work right away, picking up where they left off.

"It basically means we will survive and we will be able to keep the workforce on board. So that's a pretty powerful tool actually for us," says Alexander Kranki, who runs a software development company near Düsseldorf that employs 130 people.

Under Germany's Kurzarbeit system, the government pays much of the salaries to laid-off workers for up to 12 months during economic crises. That means Kranki doesn't have to worry that employees he's recruited and trained over the years will defect to other companies.

In the United States, Congress has approved a version of the German program called the Paycheck Protection Program, which provides small businesses with loans that are forgiven if they retain or rehire furloughed workers.

The $349 billion U.S. program quickly ran out of money after subsidizing a small portion of the businesses it's designed to help, and Congress had to negotiate an extension.

Republican Sen. Josh Hawley of Missouri is among a bipartisan group of lawmakers who want to broaden the program significantly, to take in more companies.

Such a move would be expensive, but the government is already putting out piles of money through unemployment insurance, Hawley said in a recent interview on KMOX-AM in St. Louis.

"Wouldn't it be better to keep people's jobs, keep them employed, give them that security and get ready to work again when we open this economy back up?" Hawley said.

Among the skeptics is Jason Furman, former chairman of the Council of Economic Advisers under President Obama.

Programs like PPP end up funneling money to companies that don't really need it and probably would survive the pandemic without help, Furman says.

If the economic downturn is brief, Furman is in favor of propping up some companies like the European countries are doing. But if there's a deep recession, a lot of companies are inevitably going to fail, and not even rich countries like Germany can save them, Furman says.

"If a couple months from now the business can't come back, it doesn't have enough demand, it doesn't have people coming in, as soon as the subsidies end they're going to fire those workers," he says. Doling out money only puts off the inevitable day of reckoning.

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