The COVID-19 pandemic has profoundly changed our world and the way we do business. But while the crisis is expected to usher in a new era of work, dominated by physical distancing, remote work, national supply chains and digitization, there is some danger that the road towards the future will be paved by a prolonged and jobless recovery. To mitigate this threat, and as we emerge from this pandemic, governments have a unique opportunity to show leadership by taking appropriate measures.
Authored by Bettina Schaller, the Head of Group Public Affairs at the Adecco Group.
But which measures to take to protect employment and the economy? And which of those have proved more effective? Last month, we published a comparative study analysing the governments’ response to COVID-19 in 10 European countries. The conclusions pointed to a positive correlation between short-time work measures and the size of a stimulus package on the one hand and the countries’ ability to weather the crisis on the other. To put it simply: the bigger the stimulus package and the more effective short-time work scheme, the better the response to the pandemic.
Nevertheless, as we enter the new phase of the crisis and new data become available, it is important to revisit our previous study. Using the latest information at hand, we have updated our research and added two more countries to the list – the USA and Japan. By doing so we have broadened the scope and gained a more global outlook that spans beyond Europe.
New data, similar conclusions: Short-time work & size of stimulus package matter most
Having analysed the macroeconomic indicators of 12 countries in question we find that the previous conclusions still hold: the size of the stimulus package and effective implementation of short-time work programmes seem to have the largest positive impact on a country’s ability to mitigate the economic damage caused by COVID-19.
The top tier countries, Switzerland, Sweden and Germany continue to show the most favourable economic forecast. Their recipe is based on short-time work as well as a sizeable economic stimulus of up to 10% of GDP (in Switzerland). In Germany, in the meantime, we have seen the support increase from 6 to 8% since last month.
The Group B countries, those that have performed well in many indicators but lagged in others, include Belgium, France, the Netherlands, USA, and Japan. Further down the ranking we find Austria which, despite its smallest GDP drop among the 12 countries has been classed in Group C – along with Italy – due to other main shortcomings.
The bottom tier (Group D) is formed by Spain and the UK. Spain is foreseen to experience the steepest drop to its GDP rate while the UK ranks amongst the worst in terms of unemployment, which is expected to almost double compared to its January figures.
Furthermore, we have observed that countries with higher mortality rates also face a higher drop in GDP, with the exception of Sweden and Switzerland which, despite their relatively high fatality rates have seen only a moderate hit to their economic output. Another exception to the rule, albeit from the other end of the spectrum is the UK which has experienced a relatively low number of infections but has been severely affected economically.
Recommendations to mitigate the COVID-19 impact
Despite the speed of change to the world of work due to coronavirus, we find that similarly to our conclusions on the positive effects of short-term work and the size of countries’ economic support, our recommendations have also been reaffirmed over the past month. If anything, they have become even more relevant than before. We advise policy-makers to consider the following five points:
- Keep up the economic activity: while workers’ health and safety is the absolute baseline and the unique specificity to this crisis, it is becoming apparent that every week without an economic activity exponentially increases the negative economic impact of the crisis and reduces the potential for economic recovery.
- Be responsive: a month in, our data confirm that the countries that have reacted swiftly and put in place an economic stimulus package have supported the upkeep of GDP. Important at this stage of the crisis is that the support measures are being extended and adjusted – notably by adding funds to the stimulus packages and prolonging the support schemes.
- Respect social peace: more than any crisis before, this pandemic demands the cooperation of all country decision-makers. Countries with a model of social dialogue based on negotiation rather than confrontation show better results and higher trust in the political process and consumer confidence which are key to accelerating the pace of recovery.
- Support employment: our data confirm that short-time work and other similar schemes have helped keep people in work and thus avoid mass lay-offs. Implementation of those schemes varies from country to country in terms of inclusiveness, volume, and duration but countries, where these schemes have worked in conjunction with the already existing social protection mechanisms have fared better than others.
- Focus on driving the financial support to the beneficiaries: with a month passed and due to delays, businesses and workers in many countries are yet to receive the promised support as outlined in the respective stimulus packages. A lack of timely delivery will hamper consumption and lead to increased poverty and bankruptcies which will impact negatively on economic recovery.
Our future recovery depends on today’s actions
COVID-19 and the way it has impacted our lives, livelihoods, and economies is likely to usher in a new era of work. But while the talk of the future world of work may seem too far off to many, especially since governments are still largely focused on mitigating the imminent threat to public health, it is important to bear in mind that any and all measures that countries take today will have a lasting impact on the economy of tomorrow and beyond.
As governments begin to ease the lockdown measures allowing for economic activity that will hopefully spur consumption, they stand at a crossroads that will determine how quickly our economies will recover. While in the past weeks policy making was driven by speed and the effectiveness of measures in mitigating the current impact, the shift to laying the groundwork for future prosperity is at our doorsteps. With that said, an important part of reshuffling the cards of structural labour market policy will be to look at the learnings of this crisis. Our updated study goes a long way in providing some answers to what labour markets should look like in the future.