Job losses in Europe and US hit financial crisis level

As many people have fallen out of work in the initial weeks of the coronavirus crisis as in the entire global financial crisis, according to initial indications from the US and European labour markets. Early figures suggest that on both sides of the Atlantic, the number of people no longer in their regular employment has risen to around 10 per cent of the workforce in a single two-week period — an increase as large as that which took place between 2007 and 2009.

Yet there is a stark contrast between the US, where there has been a rapid surge in redundancies, and European countries where the majority of workers affected have been laid off temporarily but should still have a job to return to, with the state supporting part of their wages in the meantime. In the US, initial jobless claims hit 3.3m in the week ending March 21, more than four times as high as the previous record set in 1982.

Danny Blanchflower, professor at Dartmouth College, forecast the total for March would reach 10m. “Unemployment is rising 20 times faster than in the financial crisis,” he told the Financial Times. “We have never seen anything like the speed of this and it suggests [governments] should throw caution to the wind in finding a response.”

Loretta Mester, president of the Cleveland Federal Reserve, said on Tuesday that the unemployment rate would certainly rise “north of 10 per cent”, up from February’s rate of 3.5 per cent, although she did not endorse warnings by other Fed officials that it could hit 30 per cent. Other countries are also experiencing dramatic changes in their labour markets. Coronavirus business update How is coronavirus taking its toll on markets, business, and our everyday lives and workplaces?

In Norway the unemployment rate has risen from 2.3 per cent at the start of March to 10.4 per cent, although the majority are temporarily laid off, with the state supporting wages. Sigrun Vageng, head of the country’s Labour and Welfare Administration, said this was the highest level since the second world war, with a quarter of tourism and transport workers and almost a fifth of retail workers now claiming unemployment insurance. In Germany unemployment has risen very little in the latest data, which only cover the period to March 12, but some 470,000 companies have applied for government wage subsidies through the “Kurzarbeit”, or short-hours, programme — almost five times higher than the 100,000 people who used the scheme during the 2008-09 recession.

“It is clear that the economic hit is abrupt and large, and that short-time work is preventing millions of job losses,” said Greg Fuzesi, European economist at JPMorgan.

In France 220,000 companies had applied for wage subsidies for 2.2m employees by the end of last week through an equivalent wage subsidy scheme known as “chomage partiel”. We have never seen anything like the speed of this and it suggests [governments] should throw caution to the wind in finding a response Danny Blanchflower, Dartmouth College Anglo-Saxon countries including the US, UK and Australia are rushing to put similar wage subsidy schemes in place to preserve jobs, reduce the immediate hit to household incomes and limit the risks of long-term unemployment once the crisis passes. But Holger Schmieding, economist at Berenberg, warned that in the US “these schemes are not widespread enough to make a dramatic difference”.

Economists at Deutsche Bank cautioned that while the UK’s new job retention scheme looked well-designed, neither it nor a new support scheme for the self-employed were operational yet and “the implementation risks should not be underestimated”. In Britain many employers appear unwilling to wait for government support to kick in. Officials told parliament last week that claims for universal credit, the main safety-net benefit, hit 275,000 in the week ending March 20 — five times the normal weekly rate — and that the volume of claims was accelerating. Editor’s note The Financial Times is making key coronavirus coverage free to read to help everyone stay informed. Find the latest here. Unemployment is growing much faster than in previous recessions because the measures taken to slow the spread of the virus are felt most severely in low-wage, labour-intensive sectors such as retail, hospitality and other consumer-facing services.

These are also areas in which there are many small businesses, ill-equipped to survive a sudden cash flow hit, and large numbers of people in informal or more precarious forms of employment. Official unemployment data for the past month is not due to be published for some time yet in some European countries, but Deutsche Bank warned that Spain and Italy, whose labour markets have still to recover fully from the effects of the 2008 crisis, could again be especially vulnerable.

Both countries have a high proportion of self-employed workers who do not qualify for government-backed wage subsidies, a concentration of small companies and important sectors such as tourism.

Employees who have been offered settlement agreements but have concerns about the real reason for dismissal should seek legal advice on the background circumstances.

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