COVID-19: an Unprecedented Job Killer
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COVID-19: an Unprecedented Job Killer

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Jeroen Posma By Jeroen Posma | Managing Director - Thu, 04/02/2020 - 10:48

A UN report estimated that global job losses could amount to 25 million, the International Labor Organization reported that potential job losses could reach 36 million worldwide and according to the St. Louis Fed’s projections, the US alone could lose 47 million jobs with a total of 67 million American jobs are at risk. Losing 47 million US jobs would send unemployment above 32%, although the forecast is that the recovery of many of these jobs would be quick if the situation is well managed.

The US Labor Department announced today that 6.65 million people filed for unemployment benefits last week, far exceeding the expected 3.5-4 million range. When added to last week’s adjusted numbers of 3.31 million job losses, this leads to a total employment loss as a result of COVID-19 of 9.96 million in the US only. Given that the US has not yet imposed a nationwide lockdown and more measures to slow the spreading of COVID-19 are likely to be put in place in the coming weeks, global predictions of the International Labor Organization and the UN could come true with the US alone.

Spain finds itself ahead of the US on the COVID-19 curve. Although the former country recorded a new daily record of 950 deaths yesterday, bringing the total number of COVID-19 deaths to 10,003, authorities believe that the virus is peaking as daily new confirmed cases have stabilized in recent days. Job losses have increased rapidly since the country went into lockdown on March 14 and reached around 850,000. 550,000 of these jobs were temporary. This makes March 2020 the period with the largest monthly increase in unemployment ever recorded in Spain. The true number, including freelancers and workers without contracts, is likely to be much higher.

Unemployment data does not include the temporary layoffs under the ERTE scheme, which allows companies to issue temporary redundancy to its workforce as a result of the force majeure. Under this scheme, which currently affects around 2 million people, workers are still technically employed by companies, which pay their social security contributions but do not pay their salary. Given that employees affected by the ERTE scheme can claim unemployment benefits for up to 70 percent of their original salary, many companies opt to reduce working hours and salaries by 70%.

Today, Spain is practically economically paralyzed as a result of the COVID-19 pandemic. During the first phase of the lockdown, people were allowed to travel to work. But since the lockdown’s tightening last Monday, only people in essential professions are allowed to go to work. A likely extension of the lockdown does not bode well for Spain’s labor market, either. With 90 jobs lost for every life lost, COVID-19’s impact is rapidly moving beyond a human tragedy.

The US is offering financial support to people who have lost their jobs, while countries such as Denmark and The Netherlands are focused on preventing job losses by paying up to 90 percent of a worker's salary to companies that are impacted by the COVID-19 outbreak. The Dutch government has implemented a series of unprecedented economic measures to ensure that companies are able to pay their employees' wages. The government has also granted a bridging arrangement for self-employed people and allowed companies to hang on to their money through relaxed tax provisions, allowances and supplemental lines of credit. Any company that expects to lose at least 20 percent of its revenue may apply with the Employee Insurance Agency for an allowance that will enable it to pay its employees' wages for three months. This, on the condition that they do not dismiss any employees from their jobs for economic reasons during the period covered by the allowance. The Netherlands also implemented a temporary scheme with relaxed rules to support independent contractors (including self-employed people) to allow them to continue their operations. Removing the necessity for people to leave their homes unless they are in essential professions is a cornerstone of the country’s COVID- strategy. Having reported 14,697 cases and 1,339 deaths, this strategy seems to now begin stabilizing the spread of COVID-19 in The Netherlands

What is Mexico doing to contain the health and economic impact of the COVID-19 pandemic? After the country’s economy contracted by 0.1 percent in 2019, Mexico has limited ability to absorb the upcoming economic shock, making it very challenging to balance the country’s heath and economic needs. Almost half the population lives below the poverty line and does not have the luxury of staying at home during a lockdown to slow the spread of COVID-19. Nearly 60 percent of the Mexican labor force works in the informal economy, making them particularly vulnerable to the expected impact of COVID-19.

President López Obrador finally called on everyone to stay at home last Friday and on Monday declared a health emergency. The health emergency measures do not include a lockdown but prohibit gatherings of 50 people or more and suspend all non-essential activities. Deputy Minister of Health Hugo López-Gatell stated that the emergency measures also strictly apply to people older than 60 years and people with medical conditions that put them at risk, even if they have jobs that are considered essential. Meanwhile, President López Obrador has routinely avoided social distancing. Mexico’s 66-year-old president broke his own COVID-19 emergency measures to shake hands while visiting the mother of former leader of the Sinaloa cartel, “El Chapo,” earlier this week.

Mexico’s business community does not count on the government to save the economy or even offer tax breaks, but the country’s president does count on the business community to save the country’s jobs and salaries. In yesterday’s press conference, President López Obrador stated that companies should act with their consciences and continue paying employees full salaries, while Mexican labor law allows companies to pay minimum wage during a public health emergency. Mexico’s president is scheduled to present his economic stimulus plan on Sunday, but few have their hopes up.

It is not only economic stimulus that is needed urgently. Mexico has waited relatively long to introduce restrictions to reduce the spread of COVID-19. If the scientific models that inform Mexico’s COVID-19 strategy underestimate the spread of the virus, then the country’s response could be too little too late. With far fewer resources, far fewer hospital and intensive care beds per capita and far fewer medical devices, as confirmed by OECD statistics, the health crisis could also be unprecedented. However, the Mexican people do count on their president and government to adequately protect the health of the nation.

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