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RPT-Europe cushions workforce as US lifeline runs threadbare

Mon, 3rd Aug 2020 11:36

(Repeats to embed graphic in text)

By Tom Sims and Norma Galeana

FRANKFURT/LOS ANGELES, Aug 3 (Reuters) - - While millions of
U.S. workers thrown into unemployment by the coronavirus
pandemic fret about feeding their families, idled German airline
purser Marco Todte is mainly concerned about his next vacation.

Todte, 41, hasn't flown for work since April. But Germany's
state-subsidized "Kurzarbeit" furlough scheme and a top-up from
employer Lufthansa means he is getting 90% of his regular income
and has the cash to explore what few leisure options there are
in an economy still emerging from lockdown.

"It is hard to go to the cinema or to go out in the
evenings. I had planned on a cruise but that was cancelled,"
Todte complained. "It’s not a question of money - more a
question of what there is to do with it."

That's a problem that Juan Ruiz, a 56-year-old billing agent
who lost his job at a Los Angeles forklift company in March when
he contracted COVID-19, would love to have.

The failure of Congress to agree on replacing the
$600-a-week extra unemployment benefit before its expiry on
Friday means his family's finances are now in
jeopardy.

Ruiz used his first benefit cheques to pay down his debts
but still has a mortgage to cover and says the new proposal of
just $200-a-week on the table when talks resume on Monday is
nowhere near enough.

"We have a lot of bills, we need to pay the house, taxes,
everything," Ruiz, still struggling with his breathing as a
result of the disease, told Reuters at his home.

"We desperately need that help."

Nothing illustrates the contrasting economic responses of
the United States and Europe to the pandemic more clearly than
how they are dealing with the devastation it has brought to
their jobs markets.

The extra U.S. weekly benefit was an attempt to cushion the
short-term blow to households as over 30 million people became
jobless. It is based on the assumption that they will be able to
return to the workforce as soon as the economy recovers.

The European approach, building on schemes like "Kurzarbeit"
already in existence, has been to use costly state subsidies to
keep workers on company payrolls with wages near regular levels
even when they work part-time or not at all.

At the most generous end of the spectrum, the Dutch "NOW"
programme retains workers on 100% of their income even when they
work zero hours. For those laid off, the baseline Dutch dole
programme is worth around $1,000 a month.

WHEN TO WIND DOWN?

Advocates of furloughs argue that, by maintaining the link
between worker and employer, they make it easier for a company
to ramp up activity quickly when demand returns.

Critics say they keep many non-viable jobs alive when it
would be better for them to be replaced by new positions in
healthier sectors.

The recent resurgence of new coronavirus cases in the United
States and Europe has raised fresh questions about the timing of
any recovery and how long either approach can be maintained.

But for now, it is clear the European way is alleviating
more pain.

By the end of May, an estimated 45 million workers in
Britain and the four largest euro zone economies - Germany,
France, Italy and Spain - were registered in furlough schemes.
For the euro zone, that has kept the jobless rate at just under
8%, barely a point higher than its pre-lockdown level.

That approach has been lauded by the European Central Bank
(ECB) for supporting consumer morale and buffering household
income, seen by many economists as key to the recovery.

Data on Friday showed French consumer spending for example
shot back to its pre-pandemic level in June even as the overall
economy shrank by 13.8% in the second quarter. Consumer morale
in Germany is also strong.

"(The system) stabilizes the income of households so that
they still consume," said Sebastian Link, labour expert at the
Ifo economic institute, which estimates some 42% of German firms
still had workers on Kurzarbeit in July.

June data show consumer spending in the United States has
held up but households have had to bite into savings as income
levels have fallen. The wealth squeeze will only get worse if
the expiring jobless benefit is not replaced.

While the immediate challenge for U.S. policymakers is to
come up with new support to ensure millions are not thrown into
poverty, European governments face hard questions about how long
they can sustain their furloughs.

Britain is planning from October to wind down its scheme,
which has supported 9.5 million jobs at a cost of $41 billion so
far, despite predictions that would cause unemployment to more
than double to 10% by year-end.

Brian Coulton, chief economist at Fitch Ratings, said he
expected other job subsidy schemes across Europe to be removed
gradually, with the timing dependent on a recovery which in turn
could be threatened by future spikes in infections.

"A lot of it was predicated on this being short-term. If the
recovery process is slower then it becomes tricky," he said.

(Reporting by Tom Sims and Norma Galeana; Additional reporting
by Toby Sterling in Amsterdam; Writing and additional reporting
by Mark John in London; Editing by Hugh Lawson)

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