Euro-Area Furloughs May Only Have Delayed Virus Jobs Damage

(Bloomberg) -- The damage to European jobs from virus lockdowns may only be temporarily held at bay and unemployment rates will probably increase later this year, according to European Central Bank researchers.

Furlough programs have kept millions on payrolls, allowing countries like Germany, France or Spain to avoid a massive jump in unemployment that the U.S. experienced since the start of the pandemic. But a sluggish recovery means some companies won’t be able to afford to bring back all workers.

The issue -- covered in two articles in the ECB’s latest Economic Bulletin -- is key to the outlook for the economy, where a rise in joblessness could mean even weaker demand, feeding further job cuts in a vicious cycle. It’s why central banks keep highlighting the labor market as a major risk, and why many governments have tried to extend programs that protect jobs as long as possible.

“It is to be expected that not all workers in short-time work schemes and on temporary lay-offs will be able to return to their previous jobs,” the economists said in the bulletin. “As a consequence, a further increase in unemployment in the euro area is expected in the short term.”

They also used hiring information from the LinkedIn networking site to estimate the jobless rate reached 9.5% at the beginning of May, far higher than the 7.4% in official statistics for that month.

The ECB analysis, using data from the region’s five largest economies, shows that consumer goods, manufacturing, recreation and travel sectors have been hit hardest since the crisis erupted earlier this year.

Crucially, it also said that postings on job website Indeed continue to signal that labor demand remains weak.

“If recalls from temporary unemployment do not occur in full, a jump in the job separation rate may lead to a further deterioration in labor market conditions,” the ECB researchers said.

©2020 Bloomberg L.P.