How are other European countries supporting their workers – and is the UK doing enough?

Across Europe politicians are extending support to workers, but the chancellor has insisted that the UK’s furlough scheme will be fully wound down by November come what may. Which approach is more sensible, asks Ben Chu

Germany has a social insurance scheme for downturns (AFP/Getty)

The German government confirmed on Wednesday that it will extend its emergency coronavirus support programme for workers until the end of next year.

The French authorities are preparing to do something similar.

These continental political decisions to extend support to workers are in marked contrast to the UK, where the chancellor Rishi Sunak has insisted, to the dismay of many businesses, that the coronavirus job retention scheme will be fully wound down by November come what may.

Which is the more sensible approach for jobs support? Extension or wind down?

Should the wider European context prompt the UK government to reconsider?

What is Germany doing?

Germany has a pioneering short-time working scheme which activates in economic downturns called “Kurzarbeit”.

This is a social insurance scheme under which the federal government covers two-thirds of the wages of workers for whom there is no work.

The goal is to help these companies through a temporary recession and reduce the need for them to make those workers redundant.

It is a time-limited scheme and was supposed to last until March 2021.

The German government this week decided to extend it until the end of 2021.

Finance minister Olaf Scholz told German television the jobs support extension, along with further financial support for small firms, could cost up to €10bn (£9bn).

Germany’s IFO Institute estimates that in July, Germany had a total of roughly 5.6 million short-time workers, down from a peak of 7.3 million in May.

Yet this decline is less rapid than hoped. That slow recovery is likely to have persuaded German ministers to commit to extend the protection.

What is France doing?

France also introduced a temporary jobs support scheme in the crisis, under which the state fund the salaries of those prevented from working, called “activité partielle”.

It covers around 70 per cent of the furloughed worker’s gross salary.

The country’s employment minister, Muriel Penicaud, said in June that this scheme would be replaced by a “long-term partial-activity scheme” that is “likely to last a year or two”.

What are other countries doing?

Under Spain’s Expediente de Regulacion Temporal de Empleo (ERTE) scheme, workers can sent home by firms if there is no work but they remain technically employed by the company. They can claim unemployment benefit of up to 70 per cent of their original salary.

ERTE is due to expire at the end of September, but it has already been extended twice.

Italy’s government extended its own furlough scheme – the cassa integrazione guadagni – for 18 weeks earlier this month.

Across the continent its estimated that more than 40 million workers have applied to have a significant share of their wages picked up by the state in this crisis.

This has helped keep the continent’s jobless rate from spiking dramatically during this crisis.

The US never had a formal furlough scheme and its unemployment rate has shot up much higher .

However, the differences between the US and European responses has not been as stark as the headline figures suggest because millions of technically unemployed US workers still expect to return to their jobs in due course and they have been able to access extremely generous (by US standards) emergency unemployment benefits.

What are the arguments for extending support?

The basic argument in favour of these schemes is that they prevent unnecessary unemployment.

They allow firms to ride out the crisis while retaining the valuable firm-specific skills and knowledge of their workforce.

The schemes are expensive to the state, but some argue that, in the longer term, this is a sound investment.

In the UK the National Institute of Economic and Social Research (Niesr) is arguing for an extension of the furlough and says it would be cheaper than the alternative because it would result in lower “scarring” for firms and workers.

What are the downsides?

The main danger is that continuing furloughing schemes merely delays inevitable redundancies at great cost.

The governor of the Bank of England Andrew Bailey recently warned that many jobs are unlikely to return after the crisis.

And the OECD recently cautioned that “short-time work schemes are effective in preserving existing jobs but may be less efficient in facilitating post-crisis adjustment across sectors”.

It’s reasonable to argue that if jobs are not coming back it’s better to face up to that reality now and adjust to it.

“Just as long-term unemployment is likely to erode individuals’ skills, so is prolonged inactivity, even if it notionally still in paid employment,” argues the economist Jonathan Portes.

That does not, it should be stressed, mean doing nothing while unemployment spikes. Mr Portes advocates government spending large amounts of money on retraining or subsidies to hiring.

What should be done?

It’s a brutally tough decision because it’s impossible to predict the progression of the pandemic with any confidence.

If there is a workable vaccine rolled out in the coming months it’s plausible much of the old economy could still return. That makes the case for extension of furlough support.

But it’s also possible that, even in that benign scenario, people will permanently shift their consumption and commuting patterns – perhaps working from home indefinitely or shopping mainly from home in future – and make many existing retail, transport and hospitality jobs obsolete.

Yet one should not underestimate the impact of what happens abroad.

The decision by countries such as France and Germany in March to lockdown their economies helped persuade the UK government to do the same, albeit belatedly.

It might well similarly prove harder for the Treasury to stick to its hard line on ending jobs support if the rest of Europe is taking a markedly different approach.