The COVID-19 pandemic has caused unparalleled economic damage. The Eurozone is experiencing the largest collapse in business activity ever recorded and global GDP is expected to fall by at least half a percent. In the worst-case scenario, as many as 25 million people could be left unemployed with a loss of income measured in the trillions.

 

This crisis is unusual because it has hit both supply and demand. Factories are closed, hitting productivity, and consumers are being told to stay indoors, with crippling effects on the tourism, travel, non-food retail, services, restaurants, hotels, events, leisure, and construction sectors. At the same time, never before has there been such a demand for healthcare personnel, medical experts, doctors, and nurses, while consumer demand is driving warehouses and grocery stores.

The effect on businesses and workers is profound, and we are still unsure how long the crisis will last. This pandemic is touching the working lives of all workers, independently of the type of contract they had pre-crisis. In consequence, this situation has led to the surge of unprecedented measures, many of which were not deemed possible until recently and many of which shed a light directly on areas where our social contract has shown cracks and a need for reform.

 

Global response to COVID-19

 

Around the world, governments have in the past days been taking measures to mitigate the economic impact of COVID-19 on businesses and workers. The measures cover several different instruments. Quick in set-up appear to be the financial and even fiscal support mechanisms to inject liquidity and thus maintain economic activity where still feasible.

 

The United States’ $2 trillion stimulus package and the initial Coronavirus Response Investment Initiative of the EU Commission to the tune of €37 billion epitomise these measures. National banks have also stepped up their efforts. For instance, the German Investment Bank promises “unlimited credit”, the US Federal Reserve offers loans and is buying-up corporate debt, and Spain is making available €400 million in credit and guarantees.

 

Countries are also supporting both businesses and workers by postponing or cancelling taxes and subsidising the payment of social contributions. In France up to €35 billion in social security payments have been waived, while Sweden is postponing salary taxes and VAT for 12 months.

 

Furthermore, several countries have begun issuing direct payments to companies, especially small and micro businesses, which often rely on self-employed workers. Among others, Germany provides micro enterprises with a financial aid of up to €9,000, and the Dutch government has decided to top up earnings of the self-employed to the social minimum for up to three months.

 

In addition to this support for businesses, what has been most striking is that a vast number of countries have also taken action to help workers as individuals and applied this across the various employment contracts. Responding to the first priority in this pandemic, namely to ensure the health and safety of all workers, numerous governments were swift in mandating increased access to medical aid and/or paid sick leave.

Zooming in specifically on labour market measures, the extended access to unemployment benefits has been introduced by numerous countries across Europe including Bulgaria, Denmark, Finland, Germany, Italy, Norway, Spain, but also by certain States in India.

 

Another instrument being implemented in a wide range of EU Countries as well as in Switzerland, the UK, Canada, New Zealand and Turkey are short-time work schemes whereby governments temporarily subsidise parts of the wages of those workers whose employers apply for the scheme.

 

The advantage of these programmes is that workers do not lose their income and they remain employed. Meanwhile, companies do not lose workers with valuable skills, which should help them recover faster after the crisis. While most European countries have similar schemes in place, the level of support ranges from 40% in Poland up to 70% in Belgium, between 75% and 90% in Denmark and between 84% and 100% in France.

 

On the flip side, however, many of these measures are not without their problems. First, they are ad hoc and not always part of a coordinated package. Some countries have announced measures and then added to them as gaps were pointed out.

 

One of such shortcomings is the fact that in many countries, benefits offered by the authorities may not reach everyone who needs them. This is too often the case for workers classified as agency workers or self-employed.

 

Furthermore, for some of them, support (if any at all) might just come too late as the decrease or loss of a job and the resulting drop or loss in income are too often radical and imminent.

 

Considering the New Social Contract

 

Some of the government responses to the pandemic are clearly extraordinary measures never seen before, or at least not on this scale. As is, they can be seen as addressing the gaps in the current social contract that have become evident over the past years. Similarly, the COVID-19 crisis has made it abundantly clear that paid sick-leave has an important function as a public health measure that also helps to protect business continuity.

Limited access to social protection is a particular issue for the growing number of workers in the various diverse forms of work such as the ones in the gig economy.

 

Some of these workers might not be appropriately classified and as a result, find themselves stuck between a rock and a hard place. Not only are they excluded from the benefits usually enjoyed by employees, but many of them also lack the (financial) freedom to secure their own protection in the same way that the “correctly” classified workers can. As a result, they are left with no protection at all – adding to the sorrow of having no income at all.

 

Ultimately, what this pandemic shows is that protecting workers is not only about social fairness but also about protecting the wider economy. Ensuring that workers of all types are embedded in a framework of social protection may help to prevent a cascade of defaults on payments and could take the edge off a slump in economic demand.

 

Once the pandemic passes and we look to make our way into the “new normal”, “with-COVID-19”, will these measures remain in place? We know that most countries have issued support as part of bespoke COVID-19 emergency response packages, which will thus come to an end, resulting in discontinuing the measures they include.

 

Is that the way ahead though? To go back to how things were? History shows us that many responses to crises, such as the growth of the welfare state after the Second World War, end up becoming features that the population expects the governments to deliver.

 

The pandemic is unprecedented, but it is not the first big economic shock, nor even the first global pandemic, and I fear it won’t be the last. Being better prepared for the next crisis will mean learning from this one first.

 

And it might mean rebalancing our priorities, away from too often seeing work and workers as just a commodity and flexibility as a lifestyle-choice, towards more resilient and sustainable societies underpinned by systems where workers thrive in an environment of flexibility paired with security.

 

The only way to do this is to rewrite the obligations and expectations of workers, businesses, and governments, leading to a New Social Contract, in that new normal.