A second wave of job losses could hit developed economies even when governments begin to lift lockdowns, as businesses reassess their ability to operate in an era of continued social distancing, economists have warned.
Figures released this week showed the mounting damage to labour markets resulting from measures to slow the spread of coronavirus.
In the US, more than 3.8m people filed new claims for jobless benefits, taking the six-week total since the start of the lockdowns to more than 30m. In Europe, official unemployment data understate the extent of the disruption, but figures given by national governments in the five largest economies show that more than 35m workers are having part of their wages paid by the state through schemes that allow employers to furlough staff and reclaim the cost.
Germany’s Federal Employment Agency said this week that its short-term leave scheme, known as Kurzarbeit, now covered more than 10m workers, double a previous estimate, and accounting for more than a fifth of the workforce. In France, 1m workers have been added in the past week to an equivalent scheme of chomage partiel, bringing the total covered to 11.3m — more than a quarter of the workforce.
Christine Lagarde, president of the European Central Bank, said this week that “labour market conditions have deteriorated massively”, while Jay Powell, head of the US Federal Reserve, said it was “heartbreaking” to see the job gains of recent years, which had benefited people on low incomes in minority communities the most, under threat.
Data due in the coming week are likely to show the US unemployment rate has risen — in the space of two months — from a 50-year low into double digits, Mr Powell said, acknowledging that it would “probably take some time for us to get back to a more normal level of unemployment”.
We are nervous that this ‘invisible’ unemployment [in these partial employment schemes] will become more visible
The International Labour Organization, a UN agency, has forecast that the immediate fall in working hours in the second quarter of 2020 will be equivalent to the loss of more than 300m full-time jobs.
Now the big question is how many people will be able to return to their jobs, or find new ones, once governments begin to ease lockdowns and reopen parts of the economy.
So far, policymakers have focused on supporting businesses to survive a short-term drop in revenues, while funding them to keep furloughed employees on their payroll. This was meant to help prevent workers from falling into long-term unemployment, while allowing companies and the wider economy to return to full capacity quickly once restrictions were lifted.
“Even in this scenario, you are talking about a large shock,” said Mark Wall, chief European economist at Deutsche Bank, adding that the eurozone’s unemployment rate could plausibly double or treble from its pre-pandemic rate of about 7 per cent.
Now most economists expect the short-term hit to GDP to be larger, and the recovery more drawn-out, than governments had initially hoped.
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“The recovery will be slow, the adjustment will be long and not without pain, for people and businesses,” said Andrea Garnero, a labour market economist at the OECD. “All public spaces will have to be rearranged and I am not sure we will rush to a spending spree as soon as the lockdowns are lifted.”
Mobility data from US states suggested that with or without mandated lockdowns, people would not resume normal activity until the health issues were solved, he added.
Companies in the most exposed sectors are starting to recognise that they will be unable to return to business as usual and are facing up to the need for large scale redundancies.
Boeing, the aircraft manufacturer, said this week it would cut 10 per cent of its workforce, while British Airways said it would have to cut 12,000 jobs and Ryanair, the low-cost carrier, said it would axe up to 3,000 jobs.
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Meanwhile, employers in Spain are calling for an extension of the country’s wage support scheme and in the UK hospitality businesses are warning that they may not be able to cover the cost of operating with strict social distancing measures in place — underlining the risk of a further wave of job losses once governments start to scale back support for staff on furlough.
“We are nervous that this ‘invisible’ unemployment [in these partial employment schemes] will become more visible,” Mr Wall said, adding that over time, business failures would mount up “and you will get a gradual conversion of partially unemployed to fully unemployed”.
Florian Hense, economist at Berenberg, said he expected European governments would extend and expand furlough schemes in order to contain the damage — but he added that he still did not expect unemployment to start coming down before the summer of next year.
“The second wave could come in half a year or 12 months, when we finally have more evidence on how many companies have made it through the crisis — and how many haven’t,” he said.
Additional reporting by Martin Arnold in Frankfurt
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