How to protect workers in crises? US-EU Ft analysis

How to protect workers in crises? US-EU Ft analysis

The different approaches between the EU and the US on how to protect workers during the economic crisis. The analysis of the Financial Times

What is more interesting than last week's US employment report are the questions it raises more than the answers it gives, writes the FT .

The increase in employment, which grew by around 2.5 million jobs in May, exceeded all expectations; Most observers had thought that millions more jobs would be lost after the April bloodbath. In normal times, such a jump would have been an extraordinary improvement in the labor market.

As it stands, it only makes things a little less terrible. The jump in May meant that around a ninth of the workers who lost their jobs in April found work the following month online. Better than nothing, but eight ninths remain with the subsidy. Actually more than eight-nine, because there is something fun with the numbers. The Bureau of Labor Statistics itself reported a classification error in the wage survey, which means it paints a flattering picture (you read that right) of the situation.

The unprecedented situation of the coronavirus pandemic seems to have caused many interviewers in the BLS survey to report many respondents as absent for work "for other reasons" (normally reserved for a fixed term for things like jury duty) that really should have been counted as unemployed. Correcting this, unemployment would have been 3 percentage points higher in May than the official 13.3%.

However, this would have improved since April, when the correct unemployment rate would have been 19.7 percent instead of the reported 14.7 percent. Another improvement over the month, yes, but on numbers much closer to the unemployment levels of the Great Depression era. And the problems with numbers don't end there. The response rate of households and businesses was much lower than usual, which means that we should attribute more uncertainty to payroll numbers during the worst pandemic than in normal times.

Furthermore, an unusually large number of people have quit the workforce altogether – more than in other recessions – and some of these should reasonably be considered unemployed because of Covid-19.

As Jason Furman and Wilson Powell explain, if the decline in the workforce followed the trend of previous recessions, the measured unemployment rate would reach 17.7%. (It would have been 20.5 percent in April.) Furthermore, even if all those who claim to be only temporarily unemployed return to work, the unemployment rate would still be at recession levels above 7 percent.

So despite these exact measurement problems, there is no uncertainty about how terrible the situation is. There is also no uncertainty that unemployment is much higher in the United States and in most other English-speaking countries than in most European countries, including the United Kingdom.

As a new report from the Institute for Government explains, the difference is due to the fact that European countries have largely chosen to subsidize companies to keep employees on the payroll while on leave; while the United States and some other countries have chosen to compensate the unemployed for loss of income directly – and much more generously than before unemployment benefits increased in response to the pandemic.

Which approach is better? It is clear that the United States will continue to have one of the highest unemployment rates in the rich world for the rest of the year compared to most other countries, if OECD forecasts are followed.

In the face of this, we must stress that many unemployed workers in the United States enjoy higher incomes with improved unemployment benefits than badly paid jobs; while workers in Europe will take home a little less on leave schedules than when they worked full time.

The crucial question is what will happen next. Unemployment in the United States could be much higher now, but that doesn't mean it can't decrease faster than in Europe as things improve. This will depend on how the respective countries' policies are changed.

It is important to recognize the risk that leave plans in Europe slow down the return to work, especially when companies cannot return to previous activity levels and can save money by keeping people on leave. Several countries have extended the duration of their programs, notably France which has announced that it will last two years. Much will depend on governments' ability to adjust leave plans over time to encourage a partial return to work.

The alternative is to pay millions of zombie jobs. There are also risks in the United States. The current generosity of unemployment benefits is temporary, but there is no doubt that there will be political pressure to extend it. In any case, politicians will have to face the enviable compromise between imposing new difficulties on the many millions of unemployed who will remain unemployed for a certain period of time and maintaining incentives to keep them that way because the jobs offered pay so little. . In either case, the ultimate goal should be to get people back to work, but not necessarily in the same job as before. The obstacles to this are different on both sides of the Atlantic.

European programs have stressed the importance of not breaking the link between employers and their employees, and productivity built through this familiarity. This is really important – but not all that productivity can be restored, as many jobs will no longer be profitable in an economy that is more alert to the risk of contagion. Keeping people tied to zombie jobs means keeping them cut off from the jobs of the future.

The United States, on the contrary, is faced with the opposite danger: that there are not enough people able to find the way to their previous employers, and that too much time and human talent is wasted to replace the lost connections on the labor market – or worse, that connections are never replaced. The Economist's Free Exchange column noted that if previous job recoveries were a guide, the United States could take until 2026 to return to the pre-pandemic unemployment rate. Notoriously, it is those with the weakest link in the labor market who are fired first in the recession and summarized last in the recovery phase. It is a bad omen that the improvement in the number of jobs in May did not extend to black Americans or young workers, both whose unemployment rates rose further. Federal Reserve Chairman Jay Powell expressed his pessimism on Wednesday about how long it will take unemployment to drop.

Behind both types of obstacles lies the biggest challenge: planning a recovery that actually creates enough new jobs that can thrive and be resilient in a post-pandemic economy. This requires not only finely balanced labor market policies, but also strong demand pressure and incentives for new investments.

The breadth of political action in recent months shows that politicians have the power to accomplish this goal. The shyness of political action in the previous recovery, however, shows that even politicians can fail miserably.

(Taken from the Eprcomunicazione foreign press review)

This is a machine translation from Italian language of a post published on Start Magazine at the URL on Sun, 14 Jun 2020 05:45:07 +0000.