![]() In stark contrast, unemployment in the United States, which had fallen to a historic low of 3.5% before the pandemic, immediately jumped to nearly 15% in April (dark blue bars in Figure 1). ![]() For instance, unemployment in France stood at 7.5% in February 2020 and 7.3% in April, while the corresponding rates in Germany were 3.6% and 4.0%. The rate of unemployment in France, Italy, and Germany hardly changed during the lockdown. The initial lockdown was accompanied by a much smaller wave of layoffs and lower rise in unemployment in the EU than in the United States. The comparison in Figure 1 shows that the STW programs worked as they were intended. Note: Authors’ calculations from national statistical agency data. The reliance on STW is much more extensive now than during the Great Recession of a decade ago, when it applied to approximately 5% of employees in Germany and Italy and 4% in France (Giupponi and Landais 2020).Įarly pandemic effects on short-time work, unemployment Nearly 30% of employees in France worked reduced hours on such a program in April 2020, along with just over 20% of employees in Italy, 13% in Germany, and 12% in Spain (light blue bars in Figure 1). This subsidy, which may last up to a year, is usually paid directly to employees after firms have applied to the program and specified the expected reduction in hours worked.ĮU companies widely adopted STW programs during the pandemic. ![]() STW programs provide a wage subsidy for hours not worked at businesses experiencing a temporary slowdown in business activity. ![]() Since the pandemic began, EU countries have largely relied on short-term work programs to maintain current relationships between employees and employers. If firms and sectors face permanent changes in demand, work-sharing policies may make businesses and workers slower to adapt and may ultimately be harmful to employment and the productive capacity of the economy in the longer run. However, these policies can also reduce incentives for businesses and workers to adjust to changing needs in the economy. We conclude by noting that work-sharing policies can be beneficial when businesses are facing transitory and short-lived slowdowns in economic activity. We find that the STW policies commonly used in EU countries to prevent job losses resulted in significantly different paths for employment over the course of the past year from that for the United States. To assess the potential impact of the STW policies, this Economic Letter compares labor market outcomes in the United States and the EU during the pandemic. By contrast, EU countries have relied more extensively on work-sharing programs that reduce hours worked per employee-known as short-time work (STW)-to avoid outright job cuts. policymakers focused largely on income support to households, such as expanded unemployment insurance, and on lending to sustain businesses and existing employment relationships, such as the Paycheck Protection Program. Along with lockdowns and other measures to control the spread of the virus, they enacted programs to preserve jobs and businesses. Policymakers in the United States and the European Union (EU) responded aggressively to the onset of the COVID-19 pandemic. However, if the pandemic leads to a permanent reallocation of economic activity, short-time work programs may slow the process of workers moving from shrinking to growing sectors of the economy. This succeeded in avoiding sharp increases in unemployment early in the recession. In contrast to the United States, European Union countries funded short-time work programs to maintain jobs during a period of lockdown that was expected to be transitory. The onset of the COVID-19 pandemic and the unprecedented slowing of economic activity that followed caused severe disruptions to labor markets around the globe.
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