Conserve or cushion?

By Ollie Campbell

"Furloughed Worker's Diary Entries" by microbizmag

As policy polarisation proliferates, a powerful partition in pandemic employment plans proceeds.

 

Across the world, there has been a surge in unemployment in every developed country as a result of the pandemic. However, based purely on the employment statistics, the size of the global recession is almost unidentifiable. This pandemic has meant the world is suffering its largest economic downturn since World War Two. It has to be noted that countries have encountered large levels of unemployment, such as the US, where the unemployment rate has risen from approximately 3.5% in early 2020 to almost 15% in April 2020, but this can’t be said for other countries. In contrast, many European, Australasian and rich Asian county’s employment rates have hardly fluctuated in the short-term.

 

The response of various governments to the pandemic is a hot topic across global news, everyone wanting to know the best way to reduce contamination whilst keeping life as close to normality as attainable. It has to be noticed that Australia has outperformed most highly populous, developed countries worldwide. The GDP of Australia fell by 7% in the second quarter of 2020, still a large blow but relatively anchored in comparison to the OECD economies average of over 10%. Unemployment has also increased indefinitely, though still in the 6-7% range, below most European nations, Canada and the US. This implies there is one factor becoming more and more important in the response to global events: Government policy.

 

Developed nations have mostly over the pandemic taken one of two different approaches to their country’s employment. To either conserve jobs or cushion unemployment. Take the latter, the protection of people who are struggling with employment. America, Canada and Ireland have all taken this approach to the recession by distributing large amounts of cash through stimulus checks and enforcing more magnanimous benefits to those unemployed. The intention of this being a provision of income to everyone, even when they, unfortunately, lose their job.

 

In contrast, there are the conservers, who include most of the rest of Europe and Australia. This idea consists of financial assistance offered to firms so that they can continue to pay workers through job retention schemes: furlough etc. This intentionally leads to much smaller variation in the unemployment levels under those shielding employment than those cushioning the blow of losing employment.

 

The downside of cushioning those unemployed is blatant. It is very unsustainable and leads to a massive deterioration of long-term economic stability. After the period of recession and lockdowns where all businesses can perform in an equal capacity to before the pandemic, a large amount of the population will have no work or earnt income. As a result, the post-economic growth will suffer and, even during the pandemic, companies will struggle to allow employees to work from home. Once firms are forced to make redundancies or let off certain staff for the temporary period during an economic downturn, the cost of retraining or hiring new staff in the future is devastating for companies that are already low on funding.

 

Without the financial incentives to work, most people would prefer to be unemployed still receiving an income, further suggesting that only increasing support for those unemployed leads to motivation problems. Helping employers to maintain their staff through government support can keep the labour force afloat for a potential u-shaped economic bounce-back.

 

Although, the long-term impacts are more convoluted than this, otherwise all countries will have adopted the same policy. In 2021, the labour markets across the developed world are bound to move in different ways, with a possibility of the 2020 effects being reversed. For those who decided to cushion those who lost their jobs, there will likely be a massive surge in employment as companies start hiring again. On the other hand, furlough is supposed to be ending in April in Britain and possibly even earlier for Spain. This merely begs the question; how much will unemployment rise as these schemes end?

 

Criticism for European governments will unquestionably rise in correlation with unemployment. Across Europe, some governments are attempting to keep furlough running as long as possible and fading out as they pay a smaller percentage of a worker’s wages as time continues. Short-term working schemes in France and Germany will last well into 2021 and potentially beyond, to soften the lack of capital that firms will struggle with. This approach is quite distinctly best, should the government have the funds. The only issue with this idea is that at this current time, more flexibility in the workforce is necessary. Various sectors will inevitably require fewer workers (such as high-street shops) when other sectors require more (such as healthcare or delivery drivers). With furlough schemes, the workforce is tied to a single sector and company, reducing the overall flexibility. Ultimately, irrespective of the economic climate, the demand for goods and services is changing exponentially, henceforth, more flexibility in the labour force is a Pareto improvement for both the government and workers.

 

Knowing the right time to wind down the job retention schemes will be a difficult call to make but a particularly important one as all European countries creep into more debt. This will be 'make or break' for multiple governments and an interesting subject to follow across 2021.  


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