European unemployment is half that of America. Here’s why

The EU’s unemployment rate rose to 6.6% in April from 6.4% in March, Eurostat, the European Union’s statistical office, announced on Wednesday.

Job losses were not evenly distributed in all EU countries. The unemployment rate in Spain, hit hard by the coronavirus, rose to 14.8% from 14.2% the previous month. Germany, meanwhile, has kept the unemployment rate at 3.5%, according to Eurostat.

Still, the data says Europe has managed to keep its unemployment cover as it struggled with the worst economic crisis since the 1930s. The European Commission predicts that GDP in 19 countries that use the euro will be contract for 7.75% this year, record.

Economists attribute in part a broad reliance on short-term work programs, which encourage combat firms to retain employees but shorten working hours. The state then subsidizes part of their salary. For example, in Germany, the government covers between 60% and 67% of salary for non-working hours.

“Short-term work programs are incredibly effective in mitigating the initial impact of the economic crisis,” Bert Colijn, a senior eurozone economist at the Dutch Bank ING, said on Wednesday.

Programs of this kind have long been popular in Europe, where it is more difficult to hire and fire workers, and many employees are covered by collective agreements. They are less commonly used in the United States, where unemployment reaches 14.7% in March.

At the end of April, companies in the European Union sent approximately 42 million requests for support to workers through short-term work programs, according to a study by the European Trade Union Institute. This is the equivalent of almost 27% of all employees in the EU.

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But UBS economist Anna Titareva says labor market surveys may not cover the full extent of harm to EU workers. The survey surprisingly shows that unemployment in Italy fell to 6.3% from 8% in March.

“It seems that some people who lost their jobs after the introduction of mobility restrictions are not considered unemployed,” Titareva said in a note on the research.

To be considered unemployed for the purpose of the EU survey, a person must be actively looking for a job and ready to start a new job in the next two weeks. Restrictions on movement or the constant need to take care of children may have forced people to refrain from looking for work, Titareva said.

Forward, much depends on the duration and extent of the economic downturn. European work programs work well as short-term measures for a short time, but they can only be used temporarily.

“Since the recovery is likely to take a long time, unemployment will increase significantly, although short-term work will help it recover faster once demand returns,” Colijn said.

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