EU governments roll back wage support despite corona uncertainty

Measures that helped save millions of jobs in pandemic lockdown are now starting to be wound down against union objections.

As Europe’s economies emerge from lockdown, governments have an unpalatable message for the workforce: We’re rolling back support.

EU governments are curtailing their emergency wage-support schemes, aimed at preserving jobs in the coronavirus crisis, even as the pandemic continues to cloud the near-term economic outlook — and against pleas from trade unions.

The European social welfare model has been effective in supporting jobs through the coronavirus crisis, as governments stepped in to help cover the wages of unprecedented numbers of workers. According to the European Trade Union Confederation, 45 million Europeans are currently furloughed and receiving at least part of their salaries through government support schemes.

But these emergency measures are costly for state coffers, and governments are feeling the pressure.

“You can’t keep the economy on steroids for too long, because this is not viable and you have to allow some reorganization,” said Stefano Scarpetta, director of labor, employment and social affairs at the Organization for Economic Cooperation and Development.

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As countries went into lockdown, governments in Europe made wide-spread use of furloughing schemes, extending them even to labor categories that normally don’t qualify for support. The OECD estimates that 55 percent of the private workforce in France was furloughed, 45 percent in Italy and 25 percent in Germany — all unprecedented levels.

Even countries that didn’t have such wage subsidy schemes, like Ireland, rushed to build them. And crucially, most of them picked up the full bill — whereas in normal times, the employer contributes to the costs of such programs. In the midst of the coronavirus crisis, this “was particularly appropriate because it was a way to save jobs that were totally viable but could not operate” under the lockdown, said Scarpetta.

And it was largely successful: In comparison with the U.S., where unemployment rose by 22.2 million in March and April combined, job losses in Europe over the same period amounted to 638,000, according to Eurostat.

“The massive use of short-time work has avoided stronger increases of unemployment and job losses,” said Daniel Terzenbach, board director at the German employment agency.

But as economic activity has started to pick up following the easing of lockdowns, governments are moving to cut back the aid measures. “With the re-opening of the economy, we cannot provide the support to all firms without any discrimination and at very generous conditions,” said Scarpetta.

In France and Austria, governments negotiated a tightening of the schemes with workers’ unions and employers’ representatives, agreeing to keep paying wage subsidies, while requesting employers to co-pay the costs. In Spain, the government decided to end its furlough scheme at the end of September, even though Business Minister Reyes Maroto said on Sunday there is “willingness and consensus” to extend the program beyond September 30. In the U.K., since August 1 employers have begun contributing an increasing share of their staffers’ wages; and the government has decided to end the scheme in October. “It’s been a very successful scheme, but [it’s] right to say we have to look forward now,” Bank of England Governor Andrew Bailey told the BBC on Thursday.

But the resurgence of the virus in certain regions of Europe — and grim economic forecasts amid uncertainty about whether the coming months will bring another tightening of containment measures — is leaving workers’ unions baffled at the wind-down of support. The European Commission’s latest forecasts see a contraction in economic activity across the EU of 8.3 percent this year, with declines of more than 10 percent projected for Italy, Spain and France — before an anticipated rebound in 2021.

‘Very, very counterproductive’

“We are insisting in all the countries about the need to prolong [short time support schemes] at least until the end of the year,” said Luca Visentini, chief of ETUC, the European trade unions’ lobby. It’s “quite early to remove the measures because this could lead to massive dismissals,” he said. “Taking a decision like that now will be very, very counterproductive.”

In the fall, EU governments should be able to access SURE — the Commission’s €100 billion loan program, meant to backup national wage support schemes. Spain already announced it’s requesting a €20 billion loan.

But the €1.82 trillion recovery package negotiated by EU governments in July won’t start flowing to EU capitals before next spring, due to the lengthy procedure needed to get the payments flowing.

“The risk is that we will have a gap between the moment when these emergency measures will end and the moment when the recovery plan will be operational,” said Visentini. “If you stop paying public money to face the emergency, especially if you have a second lockdown, but you don’t have any recovery strategy in place … what’s going to happen? … 45 million in structural unemployment,” he said.

In Italy, the government in March adopted extensive wage support and a ban on layoffs, due to expire in mid-August.

On Friday, the government extended both measures for another 18 weeks, or — if used intermittently — until year end. This came after a bitter fight with unions, which threatened a general strike if the government lifted them sooner.

“If the government did not extend the ban on layoffs until the end of 2020, it would take full responsibility for the risk of a social conflict,” the secretaries of of CGIL, CISL and Uil, Italy’s largest trade unions, said before the extension.

But its prolongation is seen by many as a cure worse than the disease. Companies that have been unable to restructure their workforces will all do so at the same time, creating “a very heavy traffic jam, a congestion in the labor market that will penalize those who lose their jobs right now, making job losses socially more costly,” said Tito Boeri, a former president of the Italian welfare agency INPS and a professor at Bocconi University in Milan.

“It won’t be a good start of 2021,” he said.

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