A tale of two types of labor markets

Chart of the week

The United States remains committed to free-market principles, even for workers. By contrast, Europe is increasingly using short-time work benefits to protect jobs. Is that wise?

One of the few benefits of a crisis is that it allows assessing the potential benefits of different economic policies across similarly afflicted countries. In recent weeks, the news from U.S. labor markets has gone from bad to worse (see Chart of the Week as of 4/9/20). Within three weeks, more than 15 million Americans have claimed jobless benefits despite various aid measures.[1] Taking into account the likely number of people in the labor force, this suggests that the unemployment rate could rise to 13%, according to Christian Scherrmann, U.S. economist at DWS. Meanwhile in Europe, applications for government-subsidized short-time work benefits, or "Kurzarbeit", are skyrocketing. In Germany alone, 725,000 companies had applied for short-time work by April 13.[2] The majority of these are likely to be in the service sector, which is particularly affected by the slump in demand. However, more and more companies in the mechanical and plant-engineering sector are also applying for "Kurzarbeit" schemes. In the metal and electrical industry alone, this probably already affects 2.2 million employees. By way of comparison, during the financial crisis there were "only" 1.4 million "Kurzarbeit" workers. Such schemes helped avoid laying off during the ensuing recession, by instead reducing the working hours, with the government making up some of the employees' lost income 

 "Kurzarbeit" is no longer just a German phenomenon. Instead, similar schemes  have spread, especially in countries where the principle of free markets is traditionally less trusted than in the United States. In France, short-time work has already reached once unimaginable dimensions. With 6.3 million short-time workers ("chomage partiel"), it now accounts for over a fifth of French employees. A considerable increase is also expected in Italy and Spain, far beyond the levels of the financial crisis. After the Lehman bankruptcy, short-time work helped to curb the rise in unemployment, especially in Germany, as our "Chart of the Week" shows. In the United States, on the other hand, unemployment shot up, but new jobs were created more quickly during the upswing. "Short-time work is a good way to mitigate the temporary effects of a crisis, especially in view of the shortage of skilled workers in Germany," explains Ulrike Kastens, economist at DWS. However, the model could prove hard to apply to other European countries. Especially in the service sector, there are a lot of simpler jobs, often coupled with a fixed-term contract. Sooner or later, Europe too might well see its fair share of redundancies.

20200417_CotW_Short-time workers_CHART_EN_72DPI.png

Sources: Eurostat, DWS Investment GmbH as of 4/14/20

1. https://eu.usatoday.com/story/money/2020/04/14/coronavirus-unemployment-claims-caused-covid-19-crisis-state/5130034002/

2. https://www.spiegel.de/wirtschaft/soziales/coronakrise-725-000-betriebe-haben-kurzarbeit-angemeldet-a-3602b422-bb1f-4e6c-a6c9-892bd61a79fc

font

CIO View

Cookies policy:

This website uses cookies in order to improve user experience. If you accept, we will assume that you are happy with this. For more information about the cookies we use or to find out how you can change your settings, see our Cookies Notice.
Accept All Cookies

Other country

Other country

Disclaimer

THE CONTENT PRESENTED HERE IS INTENDED ONLY FOR PROFESSIONAL INVESTORS, E.G. BANKS, INVESTMENT ADVISORS, PENSION FUNDS, INVESTMENT FUNDS, INSURANCE COMPANIES AND SIMILAR LEGAL ENTITIES AND IS NOT INTENDED FOR PRIVATE INVESTORS. BY AGREEING TO THESE TERMS AND CONDITIONS, THE USER CONFIRMS AND ACKNOWLEDGES THAT HE IS ACTING IN HIS CAPACITY AS A PROFESSIONAL INVESTOR OR REPRESENTING A PROFESSIONAL INVESTOR AND IS NOT ACTING AS A PRIVATE INVESTOR.

© 2020 DWS Investment GmbH