The superior performance of some countries is in part the product of a milder hit from
coronavirus. In Australia, for instance, where the labour market has held up fairly well,
GDP fell by “just” 7% in the second quarter of 2020, compared with more than 10% for
OECD economies as a whole. But in this crisis the relationship between the blow to GDP
and the rise in unemployment is not as strong as it typically is during recessions,
suggesting that two other factors matter more: policy and statistics.
Take policy first. During the pandemic rich countries, broadly speaking, have sought
either to protect people or to preserve jobs. The first group—call them the
“protectors”—includes America, Canada and Ireland where governments have sent vast
quantities of cash to people in the form of stimulus cheques and more generous
unemployment benefits. This has the goal of ensuring that people have income even if
they lose work. The second group, the “preservers”, which includes most of the rest of
Europe and Australia, has instead focused on paying workers’ wages via short-time
working schemes and furlough programmes. By design, therefore, the preservers would
be expected to have experienced a smaller rise in unemployment than the protectors.
But the apparently superior labour-market performance of the preservers is also a
product of the oddities of statistics, observes a report from the Institute for Government,
a British think-tank. “Unemployment” does not mean the same thing in every country. In
Britain and Ireland people who are out of work are generally not counted as
unemployed if they have an attachment to an employer. The European Union generally
counts furloughed workers as employed. But American and Canadian statisticians tend
to classify people as unemployed the moment they stop working, even if temporarily. In
April 2020 Australia’s official unemployment rate was 6%, but it might have been as
high as 12% if it had been calculated using American or Canadian conventions.
In 2021 labour markets across the rich world will keep moving in different ways, but
with the patterns of 2020 reversed. For the protectors, the conversation in 2021 will be
about how quickly unemployment will fall towards its pre-pandemic level (see United
States section). For the preservers, especially in Europe, the conversation will be about
how much unemployment is going to rise. That is because furlough schemes are
ending—the British government wants to wind down its scheme as soon as possible
and Spain’s is likely to end in early 2021.
Both governments will face heavy criticism as unemployment goes up. Some European
governments, keen to avoid a jump in unemployment, have pledged to keep furlough
schemes going for a while yet (though often with employers expected to pay a higher
share of workers’ pay). Short-time working schemes in France and Germany will last
well into 2021 and possibly beyond. In both of those countries, unemployment will
probably increase, though not by much.
It may seem obvious that the Franco-German approach is best. No one likes to see
higher unemployment. But the problem with keeping much of the workforce on
furlough, aside from the enormous running costs of such schemes, is that it prevents
people moving from parts of the economy which, in a post-pandemic world, need fewer
workers (say, high-street shops) towards bits of the economy which need more (say, e-
commerce warehouses or parcel delivery). Ultimately, that is bad for the economy as a
whole. Knowing the right moment to wind down a furlough scheme—and at some point,