The coronavirus pandemic has dramatically changed economic life across Europe and the United States. By confining people to their homes, leading them to spend far less money than they otherwise would, the West has seen a collapse in consumption, threatening the survival of a sweeping number and range of firms, from restaurants to airlines to car manufacturers. This, in turn, has produced a sudden and unprecedented collapse in demand for labor. The United States has witnessed a dramatic rise in jobless claims—a scarcely believable 10 million over the last two weeks. This is uncharted territory for labor markets, and so it is unsurprising that different countries have adopted different strategies for coping with the looming unemployment crisis.
Many European countries are cushioning the impact of the crisis on their labor markets by employing a system pioneered in Germany and Austria called Kurzarbeit (short-time working). In essence, it involves reducing the number of hours a firm’s employees work to reflect the fall in demand, but their salaries are reduced by much less than the reduction in hours, with the country’s federal labor office funding the difference. Put simply, it is a form of wage subsidy.
Which approach is most likely to limit the long-term economic damage? The U.S. one of rapid cuts in employment in order to match the supply of labor with the suddenly depressed demand for it? Or the European approach of attempting to keep as many as possible at work? This will depend to a large extent on the length of the downturn: Can we look forward to a rapid, “V-shaped” recovery and limited loss of economic activity, or are we facing a longer recession or even something akin to a depression?
Chosen excerpts by Job Market Monitor. Read the whole story @ America Is Having an Unemployment Apocalypse During the Coronavirus Pandemic. Europe Chose Not to.