How the Unemployment Fiasco in Europe Is Kept out of Official Unemployment Rates

The massive and once-again extended Pandemic-era furlough programs serve their purpose, but…

In Europe, people who are furloughed are paid under government programs via their employers. Many of these programs have been created during the Pandemic. In theory, these people still have jobs. In practice, they’re not working, or are working heavily reduced hours. But they do not count as “unemployed” and are not reflected in the “unemployment” numbers. So throughout the Pandemic, the official unemployment rates barely ticked up, compared to the last crisis, and remain low for the EU era, despite tens of millions of people who’d stopped working due to the lockdowns (chart via Eurostat):

Under these furlough programs, the government pays companies, who in turn pay employees between 60% and 84% of their monthly wage. In some cases, the workers work fewer hours for less pay; in others, they don’t work at all. The workers take a hit to their income but their jobs remain intact, at least for the duration of the program.

The UK adopted a sweeping furlough program at the beginning of its last lockdown. Businesses can claim 80% of a staff member’s regular monthly salary, up to a maximum of £2,500. The money must be passed on to the employee and can also be topped up by the employer.

But the unemployment rate has begun to rise as people come off furlough, and those whose jobs disappeared entered official unemployment. The unemployment rate ticked up to 4.8% in the three months to September, from 4.5% in Q2 and from 3.9% a year earlier, according to the Office for National Statistics (ONS). In London, the unemployment rate surged by 1.2 percentage points from the previous quarter, to 6%, the largest quarterly increase in unemployment since the ONS started tracking the data in 1992.

Extend and pretend. Most of Europe’s job programs were initially described as a short-term fix, providing employers affected by the lockdowns time and financial breathing space to reinvent themselves for the new economic reality that is quickly taking shape. But more and more governments extended the duration of their programs, some until 2022, in the hope that the economic outlook will change in the interim.

One country that said it wouldn’t do this was the UK. But it, too, backtracked. The furlough program was supposed to come to an end on October 31. But four days later, just after announcing a fresh lockdown, the government extended the program until March 31, 2021. It also announced a fresh round of measures to support the self-employed. On the same day, the Bank of England pledged an additional £150 billion of QE purchases, which will help ensure there is enough demand for all the new debt the government will need to issue to finance its new commitments.

In March, the number of furloughed employees exploded from zero to 8.5 million and remained near 9 million through May, after which it began to drop as the economy opened up. By the end of August, the latest available data, they’d fallen to 3.3 million:

This decline in the number of furloughed workers — some of whom then become “unemployed” — led to the irony that in the UK, as elsewhere, the official unemployment rate rose precisely when the job market was improving. Millions of people whose jobs had been put on hold during the lockdown were able to go back to those jobs once the lockdown was lifted. But many others ended up having no jobs to go back to, either because their employer had gone out of business in the interim or had decided to let them go.

Some companies announced mass layoffs in anticipation of the end of the furlough program. The problem is not just that jobs are disappearing in large numbers; it’s that very few new ones are being created.

Continue reading the article on Wolf Street

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