A second wave of job losses could hit developed economies even when governments start lifting the locks, as companies reassess their ability to operate in an era of continuous social distancing, economists warned.
Figures released this week have shown growing damage to labor markets as a result of measures to slow the spread of the coronavirus.
In the United States, more than 3.8 million people have filed new unemployment benefit claims, bringing the total of the six weeks since the closings began to more than 30 million. In Europe, official unemployment data understate the magnitude of the disruption, but figures provided by national governments in the five largest economies show that more than 35 million workers receive part of their wages paid by l ‘State through plans that allow employers to lay off workers and recover the cost.
The German federal employment agency said this week that its short-term leave program, Kurzarbeit, now covered more than 10 million workers, doubled a previous estimate and represented more than a fifth of the workforce. In France, 1 million workers were added last week to an equivalent system of Partial unemployment, bringing the total covered to 11.3 million – more than a quarter of the workforce.
Christine Lagarde, President of the European Central Bank, said this week that “labor market conditions have deteriorated considerably”, while Jay Powell, head of the US Federal Reserve, said he was “heartbreaking” at see the job gains of recent years, which had benefited most the low-income people from minority communities who were at risk.
Data expected in the coming week should show that the unemployment rate in the United States has moved – within two months – from a double-digit 50-year low, said Powell, acknowledging that it would “probably take some time to find a more normal level of unemployment”.
The International Labor Organization, a United Nations agency, has predicted that the immediate drop in working hours in the second quarter of 2020 would amount to the loss of more than 300 million 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 have started to loosen the locks and reopen part of the economy.
So far, policymakers have focused on helping businesses survive a short-term drop in earnings, while funding them to keep employees on leave on their payroll. This was to prevent workers from falling into long-term unemployment, while allowing businesses and the economy as a whole to quickly recover to full capacity after the restrictions were lifted.
“Even in this scenario, you are talking about a big shock,” said Mark Wall, chief economist at Deutsche Bank, adding that the unemployment rate in the euro area could likely double or triple compared to its rate. before the pandemic by around 7%.
Today, most economists expect the short-term blow to GDP to be greater and the recovery longer than governments had originally hoped for.
“The recovery will be slow, the adjustment will be long and not without pain, for individuals and businesses,” said Andrea Garnero, labor market economist at the OECD. “All the public spaces will have to be redeveloped and I’m not sure that we will rush into a spending spree as soon as the closings are lifted. “
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Mobility data from US states suggest that with or without mandatory locking, people would not resume normal activity until health problems are resolved, he added.
Companies in the most exposed sectors are beginning to recognize that they will not be able to resume normal operations and face the need for large-scale layoffs.
The aircraft manufacturer Boeing said this week that it would cut 10% of its workforce, while British Airways said it would cut 12,000 jobs and Ryanair, the low-cost airline, said it would cut up ” to 3000 jobs.
Meanwhile, employers in Spain are asking for an extension of the country’s wage support system and in the UK hotel companies are warning that they may not be able to cover operating costs with strict social distancing measures in place – highlighting the risk of another wave of job losses once governments begin to cut support for staff on leave.
“We are concerned that this” invisible “unemployment” [in these partial employment schemes] will become more visible, “said Wall, adding that over time, business bankruptcies would increase” and you will get a gradual conversion of the partially unemployed to fully unemployed. “
Florian Hense, economist at Berenberg, said he expected European governments to extend and extend leave schemes to limit the damage – but added that he still did not expect unemployment begins to fall before the summer of next year.
“The second wave could come in six months or twelve months, when we finally have more evidence on how many companies have gone through the crisis – and how many have not,” he said.
Additional report by Martin Arnold in Frankfurt