How Europe’s Pandemic Labor Policies Have Bested the U.S.

and one job's earthquake called COVID nineteen. When a government shuts down the economy to fight a pandemic, there's a special duty to help all those people who suddenly can't do their jobs. That was something politicians on both sides of the Atlantic could agree on. When economy started going into lockdown in in Europe and the US, hundreds of billions of dollars was spent in emergency support for workers who suddenly had nothing to do. But in the US

the money went largely on supporting incomes. In Europe it was used to support jobs. The programs did a lot of good in both places, but which will turn out to have been better for the economy in the end. I'm going to debate that crucial question in a few minutes with the head of the Peterson Institute for International Economics Adam posing. But first to help you come to your own view on that, we've got two reports from

the US and Europe. The first is from Bloomberg U S economy reporter read pick it, and straight after her you'll hear from Caroline Look, a European economy reporter based in Frankfurt. When millions of Americans last their jobs in a matter of weeks in the spring of the flaws in America's unemployment insurance system were suddenly a lot more visible. It's not really a central life system, but rather a

patchwork of state run programs. How much you get and how long the benefits last depend on where you live. For example, before COVID, an unemployed person in Mississippi would have received around two hundred and fifteen dollars a week in jobless benefits on average. In Massachusetts, the figure was closer to five hundred and fifty dollars, and those state programs don't cover everyone. If you're self employed, were a

gig worker, you typically get nothing. Going into the pandemic, the unemployment system had become narrower and less effective over time. You know, as we entered the pandemic, only one out of four workers who were jobless in February of two thousand twenty were receiving an unemployment check. That's Andrew Stettner, a senior fellow at the Century Foundation in Washington, d C.

He's been setting the unemployment insurance program for years. When COVID nineteen hit, he knew the system wouldn't be ready for the scale of job losses. So Congress stepped in with a two trillion dollar package that not only expanded the benefits to self employed in gig workers, but also to people who couldn't work because their kids school was closed or they themselves had COVID. And actually, we've been largely praised. We have to get money out of the people.

It was China's fault. They did this horrific thing. It was China's fault. We have to get money out of the people. So the Cares Act also lengthened the duration of benefits and increased payments by six dollars a week to help make folks whole after COVID shut down the economy. It sounded great, but the rollout of the program was

a nightmare. Many including Terry Ashman and her husband, waited weeks even months for help, were playing for unemployment at months and in the meantime, and we got our money when all men just through all of it, we had to start over. The Ashmans were working as independent contractors when the pandemic first hit, doing remodeling and painting jobs around Dayton, Ohio. They were evicted from their home after the bills began stacking up, relying on food banks for meals.

Even after they finally started receiving benefits, complications kept popping up that halted their weekly payments, like being mistakenly flagged for fraud. There was nothing but tears and prayers all the way through. State workforce agencies were understaffed, relying on outdated computer systems, and overwhelmed by the tens of millions of applications that were pouring in. Phone lines were jammed. While many people quickly started receiving payments, others waited months

for a payment. Some are still waiting. But for all the problems, the emergency payments did a lot to support out of work Americans. Not a bad result for program built on the fly. We when we look at poverty in two thousand twenty compared to US nineteen. Despite the fact, you know that some twenty million plus Americans lost their jobs, poverty and fact went down from two thousand nineteen two

thousand twenty. You know that is more of it. And you know the biggest group of that five and a half million people for people that are prevented from falling into poverty because of unemployment benefits. So you have to say it was effective. People were able to maintain their financial footing and the economy was able to continue growing after a very short recession um in the spring up

two thousand twenty. The government did also try something that supported workers in their existing jobs, like the European furlough programs the Paycheck Protection Program, but the program was fraught with difficulties and it's unclear how many jobs it ultimately saved. The US has since recovered about three fourths of the jobs lost at the start of the pandemic, despite severing

the connection between millions of workers and their employers. But higher turnover and a near record number of vacancies tells us that matching people to jobs has been a bumpy process. The big question for the future is whether the COVID experience will help the US build a safety net that works better for all its workers. Here's Andrew Santner again and Terry Ashman. The pattern that we seem to be in US for sessions is temporary expansions of of unemployment

benefits paid for by the federal government. That and so it's uh repeated band aid on the wound. You know. The you know, the wound is that we have a pretty red bear safety net bestly compared to internationally, so we don't really exit. We just keep throwing a band aid, you know, on it every time. It just doesn't you don't seem real, you know, because you just never imagine anything happening like that. And to that extent, you know, you're a car brings down or you know, an extra

bill pops up. Things always happened in day to day live. You know, are you thing goun to find me? But this was everything all that want God and prand to God. Nobody ever wrestling that again for Bloomberg News, I'm read pickered. Remember as economies around the world pull the shutters down, forecasters were predicting unemployment to reach twelve percent. Millions of people were on the precipice of losing their jobs, their livelihoods,

their home. That's where she's soon next. Speaking last week at Parties annual get together in England, here's the UK's finance minister, the Chancellor of the Exchequer. It was under his watch that Britain embarked on its biggest jobs experiment in decades, guaranteeing the salaries of millions of workers so they could stay home during the pandemic but still keep

their jobs. Much of Europe took a similar approach. At the height of the pandemic, roughly one in four workers in the UK, Germany, France, Italy and Spain we're having all or most of their salaries paid by the state. The main council Katy and Europian approach to this labor market shook of the pandemic was that it would delay some necessary adjustments if just struck to of the economy change. That's my have a cousin, our senior euro Area economist.

So workers would stay furthered instead of being being laid off, losing their jobs and starting looking file as a job. The programs did what they are supposed to. Families could pay their bills, and keep their jobs even those large parts of the economy shut down, But there was always a worry about what came next when economies opened up again, would those jobs turn out not to be viable In the post COVID world, economists predicted that UK unemployment, for example,

would more than double. In fact, it has stayed below five well the full costs were wrong. Now that Europe's response to the jobs crisis has stood the test of nineteen months of emergency, it's reigniting a debate on whether it's better to help workers keep their jobs during a crisis at the risk of delaying necessary adjustments, or whether it's better to let people lose their jobs but support them with higher benefits, as happened in the US. The titly depends on the crisis, and this one was very

special crisis, with very data district adjustment needed. Once vaccination poem had made the popes that you can't go back to something that looked like the preypond Nicknoman. Behind the debate lies a more general assumption within the economics profession that while Europe is often kinder to its workers, its labor market is full of inefficiencies that get in the

way of innovation and job creation. After the global financial crisis in two thousand eight, jobs were hit harder in the US, but in Europe the labor pains lasted much longer, with employment only starting to recover about three years after the US. European leaders, of course, did not want to see a repeat of that experience this time around. The furlough schemes went much further in supporting jobs than Europe

has ever gone before. Companies could reduce hours and stop paying their employees full salaries during times when they were most strapped for cash. The inspiration came largely from Germany, where decades old model known as kotzape It already proved itself during the two thousand eight crisis, when it's estimated by the o e c D to have saved half a million jobs. This time the tally is much higher. I think that could by singing and in general unemployment

insurance policy in Germany. It really made me feel safe when COVID first hit. That's Psyche Jang. She moved to Germany two and a half years ago from Hong Kong, and just before COVID hit, she was working in sales and operations for a small private jet charter operator located just outside of Frankfurt, which is one of Europe's largest aviation hubs. Especially as a foreigner, I was really concerned if I lost my job, I lost my visa, I have to go home, you know. But later on I recognized, Okay,

I'm actually secured. Like many in her industry, she found herself with little work when business and tourists travel ground

to a halt in March. My company cut it the workload of almost everyone in the team to round to and the government would pay the part that we didn't work, so eventually I would still get around of my salary even though I just work fifty Psyche was actually able to use her reduced work schedule to focus on building up other skills, such as continuing her flying lessons to get a pilot's license, and she eventually also enrolled in

a master's degree. She recently switched to another company in the industry that was able to offer her a better salary, but she says a lot of her friends back home in Hong Kong who also work in aviation, have had a much tougher time getting back into work. You know, nowadays, I see people struggle to find a job actually in aviation, so and it has been more than a year. Germany's

quotes APID program does have its limits. For example, it isn't available to many low income earners, which included a large chunk of the restaurant and hospitality workers who were hit hardest by the pandemic. In addition, aid for self employed people has been pretty patchy in much of Europe. But by and large, the pickup in spending an employment suggest the approach that was adopted by Germany and its neighbors has left the labor market on pretty good footing.

Here's our economist may Eva. Again, the labor market is in a position of relative stunts um um. It seems to have worked, and it seems that actually those followed workers have good east back into work relatively happy. It doesn't necessarily follow that governments should do this every time there is a recession. The COVID shock wasn't a normal downturn, but for now Europe's approach appears to have resulted in a job's rich recovery while minimizing the pain that workers

had to go through during the slump. Here's French finance minister Bruno Lemaire, speaking on September twenty two. This also proved it is that whatever the costs were, there thoughtful, effective and necessary policy, and then it was much cheaper to protect employees and skills companies, know how, craftsmen, traders, liberal professions, rather than then have to repair the damage caused by the economic crisis. For bloom Break News, I'm

Caroline luck Well to discuss all this. I'm joined now by one of the great friends of Stephanomics, Adam Posen, head of the Peterson Institute for International Economics and a former Bank of England policymaker. Adam, thanks for joining us again. I guess we should start by saying that governments on both sides of the Atlantic have done a lot more to support workers than they ever did before during COVID

and helped a lot of people get through this. When you think about what shape those programs, those emergency programs have left the economy in coming out of COVID, which do you think has performed better or as likely to them? Betta, thank you for having me back on Stephanomics. Stephanie, and

I'm so glad you're cackling this and you're right. The starting point is that the US, Western Europe, even other countries so to a surprising degree among emerging markets, did more to cushion the blow of the pandemic to their workers than ever previous shocks. But there was a clear difference in the US and most Western European countries, including

the UK. In the UK and Western Europe, the aid was tied to staying in work for the most part, whereas in the US you had to basically leave your job and foil for unemployment to get the extended benefits. And what we're seeing is that unemployment got much higher in the U S and even though it's come down a lot, it still isn't down back to pre pandemic levels,

and people have dropped out of the workforce. We're not seeing that kind of drop out of the workforce at the same level, and we're certainly not seeing a fraction of the unemployment in Western Europe. So it looks like on a big factor, the Western European what's the right one just to push back a bit, I mean, doesn't the explosion in small business creation, for example, in the US in the second half of twenty which is which has continued, show that the US did encourage more dynamism.

Even though it did it also produce these greater frictions and disruptions for people. It was the right call to emphasize more of the reduced frictions and not worry so much about dynamism. The explosion in small business in the US is of course welcome, and it shows the resilience of many American workers. But as always is the case, and we saw this in the two thousand eight to ten crisis, some of those people making small businesses are

just somehow making ends meet. They're unemployed, and they have to create a way of getting through it. The question is do those small businesses thrive, Are they preferable to full time work? Are they growing in some measure over the next few years, And that remains to be seen. I fear that the small business numbers are flattered by people just doing as best they could during the crisis.

I guess when you look at the furlough schemes, you feel one one naturally feels it must be better for keeping people attached to the labor market to have them formally still in jobs for a year, even if they're sitting at home, than to be unemployed, completely out of or completely out of the workforce for a year. But I guess at some level, just sitting on your hand three years, it's going to affect your productivity either way.

Do you think there's going to be a productivity cost to holding jobs in place the way they have in Europe? I think you're right that there is going to be this difficulty that anybody who's been out of work for a while has some decline in what we'll call soft skills. But I think that underestimates people's resilience. I wouldn't I

wouldn't end adaptability. I mean, remember, millions of people voluntarily walk away from jobs or lose jobs in a normal year anyway, as we've discussed in the past, and so I don't think that's the right way to look at it. The productivity growth benefits would be if, as you just said, these small businesses suddenly became engines of employment and growth

in future. And again I'm sure that will be true for some of them, but it's not big enough to justify millions of people having to go through being out of work. I feel like I'm defending via the US case here. And we heard an a on the on the piece that there were plenty of holes, and even in this extraordinary scheme, plenty of people who didn't get support, and questions raised about sort of the future of the

US safety in it. But if we if we step back from that and just think about the productivity impact, a very harsh view of the US approach would be, you know, we helped businesses actually sees some great innovation and advantages in the midst of this crisis in a way that hasn't happened in your and that has given us productivity growth which will stand the economy and good stead in the future, even though we left a lot of people behind, and that is clearly going to be

an issue too. I think it's fair to pursue that point of view. I am not as convinced of it because I think a lot of the productivity gains we're talking about your your colleagues rightly document are temporary or one time. I think you know, it was reasonable for example, for white colored people like me do not waste so much time and business travel. It was good to create a lot more services of delivery and and and sort of the uberization of a lot of small processes. But

these are not transformative, big technological big productivity jumps. The other thing I would say is what we saw in Europe in the nineties and in the two thousands was a lot of the productivity problems are because the cutting edge technologies don't diffuse from the biggest companies to throughout

the economy. And you've written on this. I know, um, and that's true in the U S to or lesser degree, But that's got less to do with the workforce incentives and more to do with business dynamism in terms of

their investment patterns and their willingness to change. I guess the final question that comes up, particularly in red Pickets our reporters piece about the US was just how how the massive rising unemployment last year, clearly through no fault of the individuals concerned, put a spotlight on the holes and the weaknesses of the US social safety net, particularly when it comes to unemployed people. Do you think that is something that experience is going to change the US

safety net forever? Or when we stop paying attention to it, is it just going to go back to the same old sort of patchwork of not very good systems. It should change the U S State network forever because we we saw how much difference it made to human well being, to the society's while being to the recovery of the economy, and how little it had the negative effects that people

worry about in terms of safety net. But I fear it won't the politics, both the structural politics that everything has done so decentralized at state and local government levels, so it's very difficult to get in place a national safety net, but also the small pop politics that there you know, you saw the people attacking the extended unemployment benefits making crazy claims about lazy workers or workers losing the interest in working, and so I fear the lesson

should be taken but won't be. We tend to hear President Biden talking about expanding the US safety net, and we know that there's been this kind of rocky road for his proposals in Congress. Is there anything he's doing

that will fundamentally strengthen this fifty net? I think the most important thing in the proposed Reconciliation Package, or what used to be called American Family Plan, are things to help people with medical leave, to help women be in the workforce, by building up childcare and elder care possibilities, by making more equal those burdens and sharing them and

providing more support for children. These are all incredibly positive long term for labor supply, but I don't think they go to the safety net in terms of what happens when there's an economic shock, so that part remains to be dealt with. So Adam Poson, we've had Europe versus the US on job support, and I think we've had a pretty clear vote for Europe in what you said. Thank you very much. That's it for this episode of Stephanomics.

We'll be back next week in the meantime. If you like the podcast, please rate it and follow us Economics on Twist for more news and analysis from Bloomberg Economics. This episode was produced by Magnus Hendrickson, as always, with special thanks to read Pick It, Karen and Look, and Adam Poson. Mike Sasso is executive producer of Stephonomics and the head of Bloomberg Podcast is Francesco leaving H