The COVID-19 pandemic is straining social safety nets across the globe — and underlining sharp differences in approach between wealthy societies such as the United States and Europe. In Europe, the collapse in business activity is triggering wage support programmes that are keeping millions on the job, for now. In contrast, in the United States more than 33.5 million people have applied for jobless benefits and the unemployment rate has soared to 14.7%.
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That is a pattern seen in earlier economic downturns, particularly the global financial crisis and the Great Recession. Europe depends on existing programmes kicking in that pump money into people’s pockets. The U.S., on the other hand, relies on Congress taking action by passing emergency stimulus programs, as it did in 2009 under President Barack Obama, and the recent rescue package under President Donald Trump.
Budget policy
Economist Andre Sapir, a senior fellow at the Bruegel research institute in Brussels, said budget policy in the U.S. plays partly the role that Europe’s welfare system plays because the American welfare system is less generous and a recession can be much harsher on workers.
In downturns, U.S. employees can lose their health insurance if they lose their job and there’s also a greater risk of losing one’s home through foreclosure. On the other hand, Europeans typically pay higher taxes, meaning they earn less in the good times. “In the U.S. you need to keep pumping money into the economy so that people continue to be employed, because it is through being employed that they are protected,” said Mr. Sapir.
The U.S. tends to rank below average on measures of social support among the 37 countries of the Organization for Economic Development and Cooperation, whose members are mostly developed democracies. The U.S. came last in people living in relative poverty, meaning living on half the median income or less, with 17.8%. Countries like Iceland, Denmark, the Czech Republic and Finland have less than 6%.
Unemployment benefits
Americans on unemployment were collecting an average of about $372 weekly before the coronavirus struck. By comparison, Germany’s jobless benefit pays 60% of previous salary for a year. France provides up to 75% of the previous average daily wage for up to two years. Unemployment benefits in France are on average €1,200 ($1,320) per month.
And there’s Europe’s short-hours programmes, which pay most of worker salaries if companies put them on shorter hours through a temporary disruption. More than 10 million workers are being paid that way in Germany and about 12 million in France, helping hold eurozone unemployment to only a 0.1 percentage point increase in March over February, to 7.4%.
Nearly half of Americans receive health insurance through their employers, while another 34% get benefits through the government programs Medicare and Medicaid. In Europe, universal health coverage is the rule, generally funded by payroll or other taxes.
Europe’s more generous social safety nets come at a cost, largely paid through taxes levied on workers and employers. In the U.S., Social Security contributions amounted to 6% of GDP in 2018, according to the OECD. In France it was almost three times higher, at 16% of annual GDP, while in Germany it was just over 14%.
Published - May 10, 2020 11:08 pm IST
