As Covid-19 Shoots US Unemployment to Great Depression Levels, Europe’s Worker Safety Net Stems Mass Layoffs

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Is the enormous surge in unemployment in the United States an inevitable consequence of the Covid-19 pandemic—or a deliberate policy choice?  Europe’s success in staving off mass layoffs with ambitious government programs even as it sees economic shocks similar to those ravaging the U.S. appears to suggest the latter.

The Washington Post‘s Michael Birnbaum reported Thursday that while European economies been plunged into recession by the novel coronavirus, Europe has “managed to shield workers” far more successfully than the U.S., where more than 30 million people have filed jobless claims over just the past six weeks.

“The unemployment rate in Europe crept up only modestly in the first weeks of the coronavirus lockdowns—at a time when millions of Americans filed for jobless benefits,” Birnbaum reported. “The seasonally adjusted unemployment rate across the European Union rose by 0.1 percentage point in March, to 6.6 percent.”

“The philosophy in Europe is that the financial blow of the pandemic can be softened if workers are able to keep paying their bills and if businesses do not have to hire and train an entirely new set of employees as the crisis abates,” Birnbaum wrote. “Many European governments have implemented a subsidy program, pioneered by Germany in the last global recession, under which they pay up to 87% of salaries for workers sent home but kept on payroll.”

Denmark, which saw its unemployment rate rise just 0.2 percentage points between February and March, has agreed to pay up to 75% of the wages of private sector employees who would otherwise have likely lost their jobs.

Flemming Larsen, a professor at the Center for Labor Market Research at Denmark’s Aalborg University, explained in an interview with The Atlantic in March that under the temporary policy, “if a company makes a notice saying that it has to either lay off 30% of their workers or fire at least 50 people, the state has agreed to take on 75 percent of workers’ salaries, up to $3,288 per month.”

Maria Hoejer Romme, a Danish business researcher, told the Post that the program is “definitely keeping our jobs alive for the moment.”

France, the United Kingdom, the Netherlands, and Italy have implemented similar programs or expanded existing payroll subsidy policies to adjust to the coronavirus crisis.

As Birnbaum explained:

Since many European countries had similar social safety net programs already, albeit in far more limited form, the salary supports were relatively easy to expand, almost literally overnight in many places, amid widespread consensus. When they imposed their economically devastating lockdowns, countries were thus able to signal to workers that their livelihoods would remain intact and to businesses that they wouldn’t immediately implode.

The United States, by contrast, has had to cobble together a support system that is in some ways brand-new…

The European response guarantees that most full-time employees will see only limited drops in their income, for now, even if they work in places like hotels and bars whose business model has flatlined because of the pandemic.

Some progressive U.S. policymakers have cited the European model in proposing solutions to America’s unemployment crisis. Thus far, the U.S. has authorized one round of direct stimulus payments to most U.S. adults, an expansion of unemployment benefits, and forgivable loans to businesses, but no direct payroll grants outside of the airline industry.

“Congress must cover the paychecks of every U.S. worker,” Sen. Bernie Sanders (I-Vt.) tweeted last month, pointing to Germany’s payroll subsidy program.

Last month, Sanders and three fellow senators introduced the Paycheck Security Act, which would “cover salaries and wages up to $90,000 for each furloughed or laid-off employee, plus benefits, as well as up to an additional 20 percent of revenues to cover fixed operating costs such as rent, utilities, insurance policies, and maintenance,” according to a summary of the bill.

Rep. Pramila Jayapal (D-Wash.), co-chair of the Congressional Progressive Caucus, introduced similar legislation in the House on April 10.

“Mass unemployment is a policy choice,” Jayapal said at the time. “We can and should choose differently.”

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