Europe’s Furlough Programs Give Labor Costs an Artificial Boost

(Bloomberg) -- Labor costs in the euro area surged in the second quarter, skewed by coronavirus lockdowns that shut huge parts of the economy and reduced workers’ hours.

The loss of hours wasn’t matched by a decrease in wages, as businesses kept people on payrolls thanks to subsidies from government furlough programs. According to Eurostat, that pushed hourly wage costs up 5.2% year-on-year, double the average rate in 2019. Total labor costs were up 4.2%.

Companies also scaled back hiring in the second quarter. The euro-area vacancy rate fell to 1.6% from 1.9%, the lowest since 2016. The region’s unemployment rate was at 7.9% in July and is forecast to rises to 9.4% by the end of the year. That figure doesn’t properly capture the situation in the labor market, given that many countries continue to operate furlough programs.

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