Nine million people across the ‘big five’ European economies face an elevated risk of losing their jobs in 2021 because of a ‘cliff effect’ in government schemes designed to curb redundancies.
Financial services group Allianz claims that poor recovery in “late bloomer” sectors such as retail, food service, transportation and the arts, could result in up to one fifth of those currently enrolled in jobs retention schemes, such as the UK’s furlough scheme, becoming unemployed next year when the schemes would have likely come to an end.
Coronavirus and furlough
“We call these zombie jobs; they require ad hoc policies to avoid postponed mass unemployment,” Allianz says in a report published this week.
Close to a third of the workforce, or 45 million people, in Germany, the UK, Italy, France and Spain are currently benefitting from government jobs protection schemes. However, even with these schemes in place, Allianz predicts that an additional 4.3 million people will become unemployed next year.
“Today, European policymakers are recalibrating partial unemployment towards longer but less generous schemes…In most countries, the generosity of the programme is being reduced, except for the most impacted sectors to avoid pulling the plug too early,” Allianz’s The risk of 9 million zombie jobs in Europe report claims.
“Many countries announced an extension of the job retention scheme to reduce short-run uncertainty for firms, transforming them into a de facto wage subsidy to support the recovery.”
Last week the Office for National Statistics revealed that retail, wholesale, accommodation and food services businesses have been the biggest users of the UK’s Coronavirus Job Retention Scheme, together putting around 3 million people on furlough.
The scheme will begin to taper off in July, when it will be closed to new entrants, and employers will be asked to contribute to furloughed workers’ salaries from September. The scheme will close on 31 October.
Allianz believes that the ‘late bloomer’ sectors – which employ around 115 million people across the EU27 – will receive further of jobs protection from governments going forwards, as pre-crisis activity levels will not return until at least the end 2021 for four reasons:
- ongoing sanitary restrictions, such as social distancing guidance, which will continue to affect the number of people using their services
- self-imposed social distancing by the public due to concerns about catching the coronavirus
- heightened domestic economic uncertainty, driven by widespread job and insolvency fears, which will restrict hiring and investment plans
- dependence on recovery of external demand.
The report suggests that employees may stay in “zombified” sectors for income protection, instead of moving to “fast bloomer” sectors, such as health and IT, which are likely to provide more job opportunities as economies recover from the pandemic.
“In this context, combining active labour market policies (up-skilling, intermediation) with wage subsidies is both urgent and important. Complementary schemes to subsidize new hires (especially younger job seekers at-risk of a scarring effect in their school-to-job transition), employees choosing mobility and re-skilling and those starting their own business should also be pursued to lessen the risk of postponed unemployment.”