Can the EU’s COVID recovery formula save Europe’s workers from poverty?

The governments of Europe are trying to maintain employment even if it means that the states themselves assume payment of a portion of salaries. Will they be able to save millions of families from ruin? (EC-Audiovisual Service/Robin Utrecht)

Millions of people have already lost their jobs as hundreds of thousands of shops, offices, restaurants, cafés and businesses throughout the world have had to hang up the ‘closed’ sign to help prevent the spread of the coronavirus (SARS-CoV-2). In order to prevent the economic disaster unfolding in parallel with a worsening health disaster, the governments of the European Union are trying to maintain employment even if it means that the states themselves assume payment of a portion of salaries. Will they be able to save millions of families from ruin?

One week after Chancellor Angela Merkel of Germany and President Emmanuel Macron of France proposed the creation of a €500 billion (US$542 billion) European recovery programme for the regions and sectors most affected by COVID-19 – still to be assessed by the EU member states – and one day before European Commission president Ursula von der Leyen presents the EU recovery plan, we outline some of the ingredients of the recipe being developed by the EU 27 to protect the continent’s workers.

Although no one knows exactly how many people have lost their jobs due to the coronavirus, the European Trade Union Confederation (ETUC) estimates that the crisis has left four million people in the European Union unemployed; this number doesn’t include those who are working reduced hours or the self-employed workers that lost their customers overnight. The International Labour Organization (ILO) estimates that in the first three months of the year 4.5 per cent fewer hours were worked worldwide compared with the last trimester of 2019, the equivalent of 130 million fewer full-time jobs.

In order to stop the haemorrhaging, almost all EU member states have initiated programmes to subsidise reduced working hours and temporary suspensions of employment. The conditions and the details in each country are different, but the idea behind them is the same: companies have permission to reduce their employees’ working hours (or even suspend them completely) and thus save on the salaries they would have to pay. Each state will compensate employers for this lost time. The only condition is that the workers must keep their jobs.

The idea behind this policy is that employees will be ready to return to work as soon as the situation has improved. The German model is the most popular. In 2009, Kurzarbeit (short-time work) ensured that German companies were ready to increase production as soon as there was an upturn in demand. “They didn’t have to rehire people. The workers were ready and motivated,” explains Alexander Herzog-Stein, economist and researcher at the Hans Böckler Foundation of the German Federation of Trade Unions (DGB)

“These systems of employment reduction played a very important role in the previous crisis by preventing higher unemployment and securing a portion of workers’ wages while providing flexibility to companies to adjust the number of working hours to the decrease in demand,” says Torsten Müller, senior researcher at the European Trade Union Institute (ETUI).

Kurzarbeit , a success story

The lens through which all European programmes of this type are viewed is the German Kurzarbeit system, the origins of which date back more than 100 years and which many attribute to Germany being less affected by the Great Recession of 2008. The role it is currently playing in the face of this sudden shutdown is proving to be more vital than a decade ago.

At the beginning of the current crisis, the German government estimated that around 2.35 million workers could need this help. The number is already much higher: by 26 April, just under two months later, 10.1 million people had already applied to enter the system, around a quarter of the country’s working population. The number of workers who have needed Kurzarbeit is much higher than in the previous recession, when only 1.5 million signed up.

How does Kurzarbeit work? Instead of firing workers, companies reduce their working hours and the state pays for that time. Workers receive 60 per cent of their net salaries from the state, 67 per cent if they have children. In certain sectors, such as the metal and chemical industries, there are agreements that can bring the level of assistance up to 100 per cent – in certain cases.

Not only do trade unions support the system but there is also broad consensus in Germany on the vital role that it plays. The system of reducing working hours helps companies to overcome temporary employment problems and keeps employees in the factories, thus avoiding unemployment,” says Ingo Kramer, president of the Confederation of German Employers’ Associations (BDA).

But the system isn’t perfect. One of the main criticisms that it receives is that because it was created in an era of industrial employment, it is designed for large factories rather than the service sector that currently accounts for most of the employment in developed countries – car manufacturers like Volkswagen, BMW and Daimler, the tyre company Continental and the chemical giant BASF, for example, were among the first to take advantage of the system.

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Companies that operate in the service sector are often smaller and thus less accustomed to the system. With their doors closed, they may find it more difficult to contribute, even a little, to keeping their workers on the payroll. On top of that, within the service sector, only workers in the catering and fast food sectors have specific agreements to be paid more than the minimum. All others have to make do with 60 per cent of their usual salary.

SURE, a European Kurzarbeit

The main problem that governments have in maintaining this type of scheme is very simple: paying a portion of the salaries of so many workers is very expensive. And not all countries can afford to do it to the same extent. According to ETUC estimates, by 31 April, just under two months since the start of the health crisis and ensuing lockdowns, EU countries had already spent half a trillion euros paying these salaries. But there is a limit to what states can do. “They are running out of money,” warns Luca Visentini, general secretary of the ETUC.

In turbulent times, a country in need of money would go to the markets, issue government bonds, and pay its workers with this money. And that’s what they are doing. The problem is that some countries like Italy, Belgium, France and Spain already have high levels of public debt (134.8, 100, 98.4 and 97.6 per cent of their respective GDPs) resulting from the previous financial crisis. And if those levels skyrocket, the countries will have to pay a lot more to borrow money.

That’s where the SURE (Support to mitigate Unemployment Risks in an Emergency) system comes in. The initiative was agreed by the European Union’s finance ministers to provide highly subsidised loans to countries that require liquidity to pay for their own Kurzarbeit. The fund will have a total of €100 billion that the EU can lend to any of its 27 member states to finance this type of mechanism. According to the estimated timetable, the money should be available and ready for use by 1 June.

The idea has been well-received throughout Europe for its ability to prevent unemployment, since it is much more difficult to get workers back once they are out of a company.

Trade unions point to at least two problems, however. The first, they believe, is that the leaders of the EU countries have taken too long to agree on the instrument, which, if legal procedures end up delaying implementation beyond June, could cause trouble for countries like Spain and Italy, which are suffering some of the worst impacts of unemployment.

The other major shortcoming that the trade unions observe is that, as is the case in Germany, not all of the people losing their jobs during this crisis can be helped by these systems. “Platform workers (such as those who work for Uber or Deliveroo), migrants, workers with precarious employment and the self-employed are usually unable to access this type of support, nor are small and medium-sized enterprises,” says Visentini. For this reason, the ETUC is asking the European Union to use the implementation of SURE to ensure that member countries improve the coverage of their programmes and, at the same time, to demand that workers receive at least 80 per cent of their net pay. This is the case in some countries, such as Austria, France, the Netherlands and Italy, but not in all of them.

Another big question is whether €100 billion will be enough for the safety net to hold. This worries Müller of the ETUI, who estimates that the total number of workers in some kind of system of employment reduction exceeds 40 million across the continent. Moreover, these systems are based on loans to countries, which could increase the pressure for cuts to social programmes in the future. For the time being, the European Commission has suspended the budgetary rules that all countries have to follow, but Müller worries about what will happen when those rules come into force again. “I fear that we will see another wave of austerity which, in countries like Italy and Spain, is partially responsible for the problems they currently face, for the state of their health systems for example.”

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What if we all got a monthly salary just for existing?

In reality, the discussion on how to help people who are having a difficult time during the coronavirus crisis is very complex and goes beyond support systems for those who may lose their jobs. Every European country has a cocktail of different programmes to help families with little or no income, the long-term unemployed and people with disabilities, making it very difficult for any expert to give a simple answer as to whether people are receiving enough help.

But an idea that has caused a stir across the world in recent weeks is the introduction of a universal basic income (UBI). The question is simple: why not save on all of these complicated programmes and guarantee a basic wage for everyone, regardless of their situation? Those who have asked this question in recent weeks include the Pope and Twitter CEO Jack Dorsey. It became the centre of Andrew Yang’s (now terminated) candidacy for president of the United States.

While it may seem appealing (or sensible), the idea is currently far from being implemented. To date no country in the world has implemented a system of UBI. Although well-known pilot projects in places like Finland, Ontario (Canada) and Kenya have had positive results, they are difficult to extrapolate to practical reality.

In Barcelona, Spain, an experimental programme of this kind has been in place since 2017. Over this period, a select group of 950 families, most with very low incomes, received payments for an average of €570. The main result: an improvement in their general wellbeing. In a population in which 80 per cent of people were at risk of mental illness, by the end of the project that level had dropped to 71 per cent. “When you give money to people it’s logical that you see their mental health improve, and this has an impact on their quality of life,” explains Bru Laín, who led the project.

Many wonder, however, if this type of mechanism increases the employability of its recipients. In this respect, experiments have yielded contradictory results.

Paradoxically, it takes participants longer to find a job because, thanks to their new stability, they invest more in improving their training and searching for more attractive work. “With this level of additional income, people don’t stop working. What it does mean is that you no longer have to work your fingers to the bone in a supermarket or as a driver for a platform company for a miserable salary because your existence is guaranteed. This allows you to look for a job more in line with your expectations and level of education. Basic income isn’t at odds with employment or labour markets but favours other types of employment and other types of labour markets,” says Laín.

Whether it’s a hypothetical universal income or the reinforcement of existing programmes for helping those with the least, Herzog-Stein warns of the danger of these ideas being used “as an excuse to fire workers” or to pay lower wages. In other words, the creation of a new safety net should not mean abandoning the rights that workers have already acquired. “A minimum income, decent wages, transparency and gender equality in earnings…it’s important to continue work to improve all of these things,” says Visentini.

The coronavirus crisis has placed front and centre the need to protect the most vulnerable from ruin. Never before have Kurzarbeit or universal basic income been more widely discussed. Could the pandemic end up being an opportunity to improve the rights of workers and the most disadvantaged?This article has been translated from Spanish.

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