As featured in Edition 37, available here.
By GEORGE RIDLEY
Since the first cases of COVID-19 were recorded in Europe in late January 2020, orchestrated policy efforts by EU/EEA countries and the UK to contain the virus and its economic fallout have revealed the inadequacies of European social safety nets.
Social distancing and lockdown regulations introduced by European governments to curb the development of the pandemic have had an unequal impact on the labour market. Aside from essential occupations, those in secure jobs who are capable of working remotely have been relatively unimpeded by state-led restrictions and closures. Meanwhile, workers without standard employment contracts – the self-employed and those working on an informal or semi-permanent basis – have borne the brunt of the coronavirus crisis, since they tend to be low-wage earners with a limited ability to work from home.
This supply-side economic shock has led to observed increases in levels of poverty and wage inequality throughout Europe. Economic modelling from the University of Oxford predicts a loss rate of up to 16.2% of income for poor workers across the continent as a consequence of emergency directives, accompanied by a 9.4% rise in poverty according to the headcount index. Analysis shows that these trends are generally more drastic in southern economies like Greece, Italy, and Spain, where ability to continue working in accordance with protective measures has been demonstrably lower and more unevenly distributed among workers than in northern and central economies like Belgium and the Netherlands.
To minimise the adverse effects of this supply shock, European governments have adopted new, or extended existing, social safety net programmes to guarantee income and employment security. Paid sick-leave schemes and unemployment bene- fits are examples of these provisions.
In Germany, the federal government notably eased access to Kurzarbeitergeld – the short-time work benefit – in its initial attempts to alleviate the economic costs of COVID-19. This social insurance programme, which was pioneered by Germany during the 2008 global financial crisis to stabilise employment, has proved instrumental in absorbing the shock on the country’s labour market following a 10% decline in economic output in the second quarter of 2020. The scheme has saved considerable human capital by subsidising employee earnings lost through reduced hours and has been imitated in other European countries such as Sweden and Austria.
However, despite its overall success in mitigating the implications of the COVID-19 recession for the labour market, the expansion of Kurzarbeitergeld in Germany still omits to cover a large number of marginal and self-employed workers who do not make social security contributions.
According to the 2020 special edition of the Global Competitiveness Report, released by the World Economic Forum, Germany is counted among the economies assessed as being ‘better prepared’ to navigate the repercussions of COVID-19 thanks to their adequate social protection coverage. Denmark, Switzerland, and the UK are also included at the higher end of this measure.
However, even in countries like Germany and the UK, which command some of the most robust and generously financed social protection systems globally, pre-existing structural weaknesses are being accentuated by the pandemic. Low-income workers and the unemployed are falling through the gaps.
The COVID-19 crisis has exposed grave fault lines in the UK’s social safety net. As highlighted by the Resolution Foundation, an independent British think-tank focused on reducing inequality, the UK’s Statutory Sick Pay fails to support 2 million of the country’s lowest-paid workers. Many vulnerable workers, including freelancers and zero-hours staff, are also ineligible for both the emergency furlough scheme and self-employment grant, which were first introduced by the Chancellor of the Exchequer Rishi Sunak in March 2020.
Throughout Europe, hospitality, retail, leisure, and tourism are the industries hardest hit by the pandemic. These sectors are a major source of informal employment, especially for women, young people, and migrant workers. southern economies like Portugal, Spain, and Greece are heavily reliant on tourism, and the low-skilled and non-permanent employees who are most prevalent in this sector have been especially vulnerable to lay-offs. This contributes to the already escalating levels of wage inequality and poverty in southern countries, making the need for comprehensive social security provisions more pressing than ever.
The state’s role in providing adequate social safety net coverage must not be downplayed during times of crisis like these. With levels of poverty and wage in-equality expected to rise across Europe, especially among southern countries, the livelihoods of low-income workers and the unemployed hang in the balance. While the primary concern of current social safety nets is income support, long-term approaches should aim to expand the social protection floor so that no one is left in the lurch.
Image: Unsplash (KOBU Agency)