The coronavirus 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 programs 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 per cent. Congress has passed US$2 trillion in emergency support, boosting jobless benefits and writing stimulus checks of up to US$1,200 per taxpayer.
That is a pattern seen in earlier economic downturns, particularly the global financial crisis and the Great Recession. Europe depends on existing programs 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 U.S. President Donald Trump.
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 Sapir. “Which is the better system? I’m not going into that discussion because that is really a huge issue.”
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%.
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Here’s a look at how the social safety nets of the U.S. and Europe compare:
Americans on unemployment were collecting an average of about $372 weekly before the coronavirus struck. But that average could range from $215 in Mississippi to $543 in Hawaii. The rescue package gave jobless workers an additional $600 a week through July. It also extended benefits to those who lost work as a result of the coronavirus outbreak, which could include parents who needed to leave their jobs because schools were closed. Most states offer six months of unemployment but the emergency legislation adds 13 weeks.
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 euros ($1,320) per month.
And there’s Europe’s short-hours programs, 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%.