Europe’s Wage Subsidies May Not Prevent 9 Million Job Losses

(Bloomberg) -- One in five furloughed workers in Europe might lose their jobs despite generous support measures designed to prevent that, according to research by Allianz economists.

Close to a third of Europe’s workforce -- or 45 million jobs in the five largest economies alone -- are benefiting from state support schemes that compensate the lost pay of workers on reduced hours. While these programs are often credited with preventing the sort of short-term mass unemployment seen in the U.S., economists led by Katharina Utermoehl say about 9 million of them could lose their jobs once support measures run their course.

The findings illustrate the growing risk of a longer-term spike in unemployment that would weigh down on Europe’s recovery from the worst recession in living memory. Industries including accommodation, food services, entertainment and retail will likely not recover to pre-crisis activity levels until late 2021, the researchers said. Ongoing sanitary restrictions, social distancing and uncertainty over domestic and external demand mean workers in these industries “face an elevated risk of becoming unemployed in 2021 because of the muted recovery.”

“One of the issues policy makers will have to address is the risk that zombified jobs will see some workers stay in ‘late-bloomer’ sectors for income protection” instead of moving toward better job opportunities, according to the report. “Combining active labor market policies (up-skilling, intermediation) with wage subsidies is both urgent and important.”

©2020 Bloomberg L.P.