Faced with the prospect of mass layoffs coinciding with a second wave of COVID-19 and new lockdowns, European leaders are extending their commitment to generous, budget-busting efforts to keep workers paid and employed.
The latest country to fall in line is Britain, which on Friday backed away from ending a government program the pays up to 80% of private-sector salaries for workers furloughed because of the pandemic.
Instead, the British Treasury will continue to subsidize wages for businesses told to close under the growing number of regional lockdowns. It will also offer more limited support to workers who have seen their hours reduced.
“We will do whatever is necessary to protect jobs and livelihoods as the situation evolves,” said Chancellor Rishi Sunak, who for months had declared that Britain’s $50 billion furlough program wasn’t sustainable and needed to expire this month.
Britain follows Spain, France, Italy and others that have decided to continue expensive furlough programs far beyond the few months initially planned and budgeted for. In Germany, where the model originated, policymakers have extended their version all the way to the end of 2021.
“We will also need the furlough tool in the coming year,” German Labor Minister Hubertus Heil said at the end of September, unveiling another round of monthly unemployment figures that betrayed little pandemic-era trauma.
“With it, we secure jobs and give businesses the security to make plans. They need skilled workers in place so that they can get started again after the crisis and get the economy going,” Heil said.
The all-in European effort contrasts sharply with the turmoil in Washington, where leaders continue to squabble over a new stimulus package 11 weeks after they allowed crucial $600-a-week supplements for unemployment benefits to dry up, leaving millions of Americans in the lurch.
The basic model of the European programs, sometimes called short-time work, is that struggling employers can place their workers on either full or partial furloughs, while the government takes over most of the cost of their idled time. The aims are to keep paychecks flowing to anxious citizens, prevent otherwise sound businesses from going under, and avoid the need to hire and train new workers after a crisis recedes.
The programs have been credited with cushioning the shock of the pandemic. While the U.S. unemployment rate skyrocketed from 3.5% to 14.7% between February and April — a historic spike — and still remains more than double its pre-pandemic level, the European Union rate has moved only modestly upward, rising from 6.5% in February to 7.4% in August, the latest month for which figures are available.
The costs are high. Germany may spend more than $35 billion on the first year of its furlough program, policymakers have said, and a yearlong extension could cost another $12 billion. A program that expensive, adjusted for the larger size of the U.S. economy, would carry a price tag of around $260 billion. Britain’s program, estimated to have cost $50 billion so far this year, would have cost around $390 billion in the United States. And Spain’s monthly furlough bill, $4.7 billion, would be $72 billion in an economy the size of the United States.
But, in most cases, those costs are a marginal increase over the generous unemployment benefits European countries would have to pay out if their workers were to lose their jobs. Germany pays workers up to 67% of their old salaries when they lose their jobs, compared to the up to 80% it is paying on the furlough program. Some French workers receive up to 75% of their old salaries on unemployment; the furlough program covers up to 70%. Britain has significantly less generous unemployment benefits, so the cost of its furlough program has had an extra bite.
The consensus among European policymakers has been that the extra expense is worth it. And many economists — and workers — are pleased with how the programs have performed so far.
“In subsequent recessions, these short-time programs will have a much more substantial role in Europe than in the past,” said Marcel Jansen, an economics professor at the Autonomous University of Madrid.
But as supposedly temporary measures in Europe are extended again and again, some economists fear the programs may be an expensive way to prop up “zombie jobs” that may never come back and to postpone an inevitable wave of unemployment.
“If your job six months on is still depending on state support, it does beg the question of whether those jobs now are viable,” said Jessica Hinds, an analyst at Capital Economics, a London-based consultancy.
Taken together, Europe’s five biggest economies may have about 5 million “zombie jobs” in sectors that could take years to return to pre-pandemic levels, said Katharina Utermöhl, an economist with Germany’s Allianz insurer.
Still, Utermöhl said, “governments did the right thing at the time, and they’re still doing so,” since the second wave of the pandemic might create a temporary economic shock just as the first one did.
Andy Lennox, 33, a restaurant owner in the Bournemouth and Poole area of southern England, said there has been a lot of anxiety about the future within a WhatsApp group he created that includes more than 500 local hospitality businesses.
“Everybody used the furlough program. It was lifesaving from the government,” said Lennox, who furloughed about 20 employees. “It’s been brilliant and saved an enormous number of jobs.”
Giuseppe Ierna, who owns Café Peppe, an Italian cafe in Berlin’s Schoeneberg district, is also among those who have appreciated the extra cushion.
“This is a rich country, where the social system works,” said Ierna, 55. During normal times, his sunny corner terrace is filled with tourists and loyal regulars. But when the pandemic hit, sales plummeted by 70%. Instead of lounging around to sip aperol spritzes, most people these days order coffee to go. In the Spring, Ierna got a government grant of about $5,400 for hard-hit small-business owners, and he put his employees on the furlough program, saving their jobs.
“It’s the smart thing to do,” he said. “If we had all gone under, millions of people would have been unemployed.”
About 3.7 million German workers in September were using their country’s furlough program, down from 6 million in April, according to a survey from the Munich-based Ifo Institute.
“I work less but get almost the same amount of money, because the government is chipping in,” said Philipp Gladiator, 36, an online marketing manager in Berlin whose boss approached him at the start of the crisis to ask whether he’d be willing to work four days, instead of five. He agreed, and now receives 80% of his usual salary from his employer, plus a government-subsidized portion of his remaining pay.
“I get long weekends.” he said. “And that is totally fine for me.”
Holger Schmieding, chief economist of Germany’s Berenberg Bank, assessed that the benefits outweigh the costs, even now that the programs have been extended.
“It is now longer than we expected, but the general logic that you tie them to work that will be temporarily affected, but not tie them to jobs that will disappear eventually, still applies,” Schmieding said. “We will all go back to the Spanish beaches eventually, once they are safe.”
Even so, some companies have already started large-scale layoffs, particularly in the aviation and tourism industries. Lufthansa, for instance, has already cut 22,000 jobs and plans to trim more, a sign that some big employers see little reason to keep workers they may not need for a long time.
Meanwhile, some industries that embraced the subsidies may have had other challenges even before the pandemic.
After the coronavirus halted the production of many of the automotive plants that Sven Kerpen’s Cologne-based engineering firm works with, the 41-year old business owner placed almost all of his employees on the German furlough program. He has avoided layoffs.
“It lets us keep their skill set on board because every employee brings a unique skill set to the table,” Kerpen said, “and in that sense enriches the company.”
But for some industries like the automotive sector, the program is merely a short-term rescue, since many car companies are unprepared for the German government’s push to produce climate-friendly electric cars, he said.
“We have a lot of problems in the automotive industry coming together at a very bad time, and it’s not only coronavirus,” he said. The furlough program “is kicking the can down the road.”
— — —
Birnbaum reported from Riga, Latvia, Booth reported from London, and Luisa Beck reported from Berlin. The Washington Post’s Karla Adam in London and Quentin Ariès in Brussels contributed to this report.