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Photographer: Chris Ratcliffe/Bloomberg
QuickTake

How the U.K. Is Joining Nations Fighting to Save Jobs

How the U.K. Is Joining Nations Fighting to Save Jobs

Pandemic Hit Economy in Regional British Town
Photographer: Chris Ratcliffe/Bloomberg

Governments facing a choice between supporting jobs or letting the economy take its course in the pandemic are frequently opting to back their workers, even if measures may only offer temporary relief. U.K. Chancellor of the Exchequer Rishi Sunak’s introduction of a new six-month scheme to subsidize wages of people in part-time work, even as an earlier program was being phased out, is just one example of a global phenomenon.

1. What’s the U.K. doing?

Sunak has announced a new jobs support program to succeed the furlough policy, which was due to end on Oct. 31 and has supported more than 9 million jobs at a cost of 39 billion pounds ($50 billion). Under the furlough program, the government paid people who were unable to return to their workplaces because of Covid restrictions as much as 80% of their wages. The replacement policy will provide subsidies to workers who can return to their jobs for at least a third of their normal hours. Their employer will pay the hours they work, and the government and employer will each pay a share of wages for the hours they don’t work. It means that people on the new program will be guaranteed at least 77% of their normal wages. But it also leaves employers potentially on the hook for 55% of wages for an employee working just a third of their normal hours. Bloomberg economists Dan Hanson and Jamie Rush said a spike in unemployment appeared inevitable, with the risk of employers shunning the scheme rather than paying for employees on reduced hours.

Big Jump

U.K. unemployment was already rising during the furlough program

Source: Office for National Statistics

2. What about other countries?

Germany in August extended its flagship program under which the government covers the bulk of pay for employees who can’t work. There have been similar moves in France, Italy, Switzerland and Austria, while Japan has been providing payroll assistance for firms and cash for households. In contrast, in the U.S., Congress has struggled in the run-up to the November presidential election to extend a stimulus package that gave the unemployed additional federal funding.

3. How does Germany’s system operate?

The state-funded German safety net known as Kurzarbeit keeps salaries flowing to employees even when their work has dried up. Businesses facing a temporary and unavoidable shortfall of orders due to a crisis can apply for the government to subsidize workers’ salaries while activity is reduced or put on hold. Kurzarbeit -- pronounced KUHRTS-ahr-bite, and loosely translated as “short-time working” -- typically covers 60% of lost net wages, which rises to 67% for people with children. Companies are still responsible for paying workers and must apply to get reimbursed by the state. The German government has expanded the program to include contract workers and cover social insurance contributions. Originally intended to run for 12 months, eased conditions for accessing the program were extended through the end of 2021.

4. Does its model work?

Though smaller companies say it isn’t perfect, as it assumes they can cover personnel costs upfront, Germany’s program has received praise. It kept about half a million people employed during the global financial crisis, the Organization for Economic Co-operation and Development reported in 2009. Germany’s labor minister says it’s helping millions this time around. Companies use Kurzarbeit even when there’s no crisis, as it can offset seasonal production swings, such as bad weather affecting construction. It can also be used by firms undergoing restructuring to prevent sudden layoffs. In June, there were about 5.4 million people receiving the benefits, down from a high of 6 million in April, according to Federal Labor Agency data. Still, some 9,000 companies applied for Kurzarbeit in August. Compare that with 2019, when an average of 1,300 companies applied for support each month.

5. Are any of its neighbors following suit?

France has extended its emergency furlough program to the end of the year for the worst hit sectors and ministers have said it could continue even longer if needed. But the French government has also put in place a long term partial-unemployment system that provides a similar level support to workers and firm, but on a case by case basis. To benefit, a firm’s management and employee representatives must negotiate a deal that allows a reduction of up to 40% in working hours over a two-year period, in exchange for commitments on maintaining jobs. The state than has to approve the deal, which can be used on-and-off for three years. Companies must pay 70% of the gross wages for unworked hours, which equates to around 84% of an employee’s net income. The state will reimburse companies 60% of gross wages up to 4.5 times the minimum wage. The level of state funding will decline slightly for deals signed after October 1.

6. What about the rest of Europe?

In Italy, the government has increased furlough provisions and extended a firing ban to Dec. 31. Companies can apply for the state to pay workers’ wages for up to 18 weeks, but the program from Oct. 1 to Dec. 31 will require some businesses to pay a share of the salary. Spain, Belgium, and the Netherlands are among other European nations that allow distressed companies to tap government funds to pay salaries in periods when they have little or no income. Sweden and Denmark introduced support measures in response to the virus, with Denmark’s aid program paying partial wages for 270,000 people for varying periods over its extended five-month duration. To help pay for policies that preserve jobs, the European Commission has said it’s ready to loan up to 100 billion euros ($117 billion) to member states.

7. How are companies responding?

Big names in Germany including Volkswagen, BMW, Daimler, sports-apparel maker Puma and airline Lufthansa have all made use of the Kurzarbeit program, and in some cases were continuing to do so in late 2020. The first large company in France to reach a broad accord with unions was Safran SA, a plane equipment maker that has been hit by the aerospace slump. With orders drying up at its civil aviation business and a turnaround that may not come for another three years, it put about a third of its 95,000 global workforce on furlough between April and June and has cut roughly 15% of permanent employees, or almost 14,000 people. The headcount reduction adds up to more than a quarter of workers outside France, and less than 2%, or some 700 people, in its home country. What’s important for Safran’s French unions is that people didn’t lose their jobs and expertise will remain within the company.

8. Does the U.S. have anything similar?

Theres is a program with some similarities to Germany’s, but it’s administered on a state-by-state basis, is less flexible and isn’t as widely used. Furloughed employees in the U.S. typically go without pay but retain access to benefits like health insurance. Under the stimulus package signed into law by President Donald Trump, people being paid unemployment benefits through their state received an additional $600 per week from the federal government through the end of July. The stimulus law also made more workers eligible for unemployment benefits, including the self-employed. Congress was divided on ways to extend the program as the November presidential election approached.

The Reference Shelf

  • A Businessweek story illustrating how Germany pays workers to stay home.
  • A Bloomberg story on how Europe is putting jobs before restructuring.
  • An analysis of short-time work programs in different countries.
  • A Fortune article on how furloughs work in the U.S. system.
  • An OECD study on skills measures to mobilize the workforce.

— With assistance by Tara Patel, William Horobin, Reade Pickert, Kati Pohjanpalo, Paul Gordon, Alex Morales, David Goodman, and Tim Ross