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Europe's wage schemes shielded households from most income losses
[FRANKFURT] Government wage subsidy schemes shielded eurozone households from the majority of income losses during the bloc's pandemic-induced recession, and wage losses are now rapidly diminishing, a European Central Bank study showed on Wednesday.
Under various "short-time work" initiatives, companies can temporarily cut working hours in periods of economic stress and governments pay most of the lost wages in exchange for job guarantees.
Without such arrangements, households in the currency bloc would have lost 22 per cent of their labour income at the height of the lockdown, but the actual loss was only around 7 per cent, the ECB said in an Economic Bulletin article.
"After the end of the lockdowns the low impact period illustrates that the loss in net labour income could diminish to -3 per cent, while short-time work benefits rapidly diminish," the ECB added.
Over 35 million workers in the five biggest euro zone countries may have been on a short-time work scheme at the height of the crisis, the ECB said, a key reason why unemployment rose to just 7.3 per cent in April, half of the rate in the United States.
The scheme, which allowed Germany to emerge from its 2009 recession quicker than most others, preserves jobs, household spending power and corporate margins, expediting any recovery.
"Reducing household income uncertainty is a further channel through which public policy can help to alleviate the adverse effects of the coronavirus pandemic on household spending," the ECB added.