Support people rather than jobs for a more resilient post-Covid economy

WHAT should we protect during the coronavirus pandemic: Jobs or the people who hold them? Different answers to this question largely explain huge variations in unemployment figures around the world. In the years ahead, they are also likely to distinguish between successful and sluggish recoveries from the crisis.

European countries have generally focused public support on jobs. Various job retention schemes and short hours programmes have kept employees attached to their employers and off the unemployment totals.

The EU unemployment rate has risen only a little, from 6.5 per cent in March to 7.2 per cent in July. In the UK, which has followed the same strategy, unemployment has edged higher: From 3.9 per cent in the first quarter to 4.1 per cent in the latest data ending in July.

By contrast, generous US support in the form of enhanced jobless benefits has been given to individuals, until this fell victim to political infighting.

With the support attached to the person rather than the job, the US unemployment rate leapt from 3.5 per cent in February to 14.7 per cent in April before falling to 8.4 per cent in August.

The underlying conditions in the European and US labour markets were similar, but the type of support had vastly different effects on the unemployment statistics. More importantly, the gulf between the policy approaches will have meaningful and lasting economic effects.

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Early in the pandemic, there were many advantages in the European approach. When coronavirus lockdowns appeared to be a short-term emergency response needed to buy time to beat the virus, job subsidies were a smart way to minimise disruption and eventually allow a return to normal. This sort of public insurance works best when the crisis is short, the affected companies require skilled workers and the jobs at risk are high value.

The longer the world has to live with social distancing and the more sectors are unlikely to return to their former glory, the more important it is to find a different solution.

In that case, we need to support workers rather than jobs, helping them find alternatives rather than simply waiting and hoping that their old jobs come back. The US strategy now seems preferable.

Supporting people rather than jobs also works better when the roles at risk are lower skilled because fewer months of training are lost when people switch to other positions. With the pandemic disproportionately hitting the lower-skilled and worse-paid retail, hospitality and travel sectors, it is increasingly workers who deserve our support more than their employers.

The US must urgently resolve its political disputes over the level of support. Congressional negotiations are stalled despite the expiration of key benefits including an extra US$600 per week unemployment benefit and a federal moratorium on evictions.

Europe, meanwhile, should now begin to switch away from keeping people attached to jobs that will not return quickly and towards supporting workers find new employment.

As time passes, job retention schemes will, in any case, become more and more unfair, because they provide much greater support for those who previously had jobs than for young people who are entering the labour market for the first time.

Recognising that the pandemic has moved into a new phase, the Organisation for Economic Co-operation and Development this week urged all its member countries to adjust their responses to Covid-19 "gradually to support workers rather than jobs".

This was not to cut costs, the international organisation emphasised. Rather, governments should be seeking to give people the best possible chance at maximising their earnings over time by helping them find new roles now.

None of this will be easy - and all of it is subject to the future course of the virus. If an effective vaccine is just around the corner, there is a case to delay any shifts in policy because there is a greater chance the world can return to its old way of life and workers to their former employers.

But Covid-19 has been around for many months. Shopping habits have altered, work patterns are likely to change for good and there almost certainly will be less travel.

It is time, therefore, for a shift away from temporary job retention schemes. We need generous benefits for those out of work and intensive state support to help people retrain and find new roles.

Transitions are hard. But it is better to attempt the difficult path than to pretend the pre-Covid-19 economy will return if only we wait a little longer. THE FINANCIAL TIMES