Economics of hope: How EU keeps workers' jobs during lockdown

Short-work programs in Europe not only keep hard-hit businesses afloat, preventing millions of workers from losing their jobs and incomes, but they also bolster the economy. The unemployment rate in the EU only rose by one tenth of a point to 7.4% in March.  

Andrew Medichini/AP
Chairs and tables are piled in front of a bar in St. Mark's Square in Venice during a lockdown to prevent the spread of the coronavirus, April 6, 2020. Short-work schemes put in place by European governments proved their value during the Great Recession in Germany.

Christian Etchebest's Parisian bistro is a shadow of its usual bustling self. Five lunch specials sit in neat paper bags on the bar awaiting takeout customers – a tiny fraction of his normal midday business before the coronavirus.

A skeleton staff rotates in daily at La Cantine du Troquet near the banks of the Seine River, just blocks from the Eiffel Tower. One day they packaged a streamlined version of his Basque menu: sausages with a celery and beetroot remoulade, mashed potatoes, and a dessert of strawberries with lemon sauce.

Yet Mr. Etchebest isn't facing bankruptcy – not yet anyway – thanks to a French government program that lets him put staff on reduced hours and makes up most of their lost salary, on the condition they are not fired. That is giving him a chance to keep his team together, awaiting the day when restrictions are lifted and sit-down meals are again allowed at this restaurant and his six others across Paris.

Similar programs are keeping hard-hit businesses across Europe afloat, preventing millions of workers from losing their jobs and income for now, and thousands of bosses from seeing their trained staff scatter. Some 11.3 million workers in France are getting up to 84% of net salary. The government estimates the cost at 24 billion euros ($26 billion), with half of all private sector employees expected to take part.

In Germany, some 3 million workers are being supported, with the government paying up to 60% of their net salary if they are temporarily put on shorter or zero hours. Those with children get 67%, and many companies such as Volkswagen add more.

The impact of the pandemic and the cushioning provided by such short-work programs were underlined in reports released Thursday that showed the unemployment rate in the 19-country eurozone edged up only by a tenth of a point to 7.4% in March despite a record economic contraction. GDP tanked 3.8% quarter-on-quarter in the first three months of the year and is forecast to slide even more in the second quarter.

The work support programs are different from jobless benefits. They are only for temporary shutdowns that are no fault of the business itself. And they are no panacea. Such programs can't save jobs that disappear due to long-term slowdowns in customer demand or to technological changes. But it gives workers and bosses breathing space and hope, preventing the unnecessary destruction of viable businesses.

"I will roll up my sleeves up and I will fight for all my restaurants," Mr. Etchebest said. "For the majority of my staff to remain with me and so on. What else can I say? I can't contemplate the contrary ... I will fight for it until the end."

His chef, Thierry Lararralde, was weathering the crisis financially thanks to the support. "I can't say I'm struggling; my net salary is around 3,000 euros ($3,222 a month), I am making 700 euros ($750) less." He is making ends meet by spending less on gas and cooking at home: "It's cheaper, we adapt."

The takeout crew pushed aside their masks to eat together, Mr. Etchebest slicing a rare roast beef on a wooden board for them.

Mr. Etchebest realizes the road ahead could be tough after they re-open with fewer tables due to social distancing requirements.

"I am fully aware we will have 40%, 50% less of business," he said, adding that some employees with health risks may not return. "I think everyone needs to adapt their business model – financially and operationally."

Economist Holger Schaefer at the German Economic Institute in Cologne said short-work support gives employers more options than the stark choice of keeping people or firing them.

"I can say, 'You come 70% of the hours, or 50% or 30%.' One doesn't have to say either all or nothing," he said. "When the crisis is past and the demand for labor rises, then the business owner has exactly the right staff available right away and doesn't have to find new people."

The support also bolsters the entire economy. "When someone is afraid that their job will be lost in the near future, that person limits their consumption, they don't buy a new car and spend less money, and that has in turn an effect on the macro-economy," Mr. Schaefer said.

Short-work schemes proved their value during the Great Recession in Germany, where 1.4 million workers took part. The unemployment rate only edged up, from 7.3% in January 2009 to 7.5% in December that year, even as the economy shrank a painful 5%. Growth then quickly rebounded.

It's the flip side of a European labor market, where worker protections are often blamed for deterring hiring in good times and where income taxes are higher to pay for the safety nets. It took seven years for unemployment to drop from a peak of over 12% in 2013 in euro-currency countries to 7.3% in February.

Femke Zimmermann, manager of Brasserie Berlage in The Hague in the Netherlands, has her eye on re-opening even as she spends most days at home looking after her 1-year-old and 5-year-old sons while the restaurant's owners pay her with government help.

For now, she is not overly worried about losing her job. She stays in contact with her team and asked them to come in to give the restaurant a two-day spring clean.

"They hate sitting at home. They want to do something for the business," she said.

Athens waiter George Sakkas is getting by on a Greek government program that lets businesses suspend workers' contracts and replaces their pay with a flat stipend of 800 euros ($870). Businesses that take the help cannot fire staff.

"The stipend definitely helped," he said, noting the amount was roughly what he would make anyway.

"In the beginning we didn't know about the stipend, so [the closing] hit us very badly," he said. "When the stipend arrived it gave us some breathing space."

This story was reported by The Associated Press. Mr. McHugh reported from Frankfurt, Germany. AP writers Mike Corder in The Hague, Netherlands; Angela Charlton in Paris; and Theodora Tongas in Athens contributed to this report.

Editor’s note: As a public service, the Monitor has removed the paywall for all our coronavirus coverage. It’s free.

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