Moment of truth for expensive jobs rescue bid
European governments that unflinchingly deployed tens of billions to prevent a catastrophic jobs crisis are now grappling with the challenge of turning off the tap on what’s become one of the biggest welfare experiments in history.
Unlike the US, which allowed workers to take the strain, European countries took unprecedented steps as they shuttered economies to contain the coronavirus, with many directly taking on the cost of paying employees to prevent mass layoffs. In Spain, for example, the number of people filing for jobless claims surged for a second month, underscoring the damage from the coronavirus crisis on an already fragile labour market. In France, more than half the private sector workforce is effectively being paid by the state to stay at home, while Germany has seen a surge in the number of companies using its Kurzarbeit wage subsidy program in this crisis.
The next crucial step is managing the financial cost versus the economic and political threats of leaving people and companies in the lurch. Many of the programs were crafted on the fly with little clarity on how they’d be ended. The massive efforts so far have saved about 40 million jobs across Europe at an eye-watering cost that governments can’t afford indefinitely. But removing aid before companies can afford to pay wages again could plunge millions into lasting unemployment, derailing any nascent economic recovery as well as raising the risk of social and political unrest. “It’s quite amazing, the numbers are something we have never seen before,” said Stefano Scarpetta, director for employment, labour and social affairs at the OECD in Paris. “My sense is that they will keep it for quite some time. The cost will be enormous but the alternative is to see a lot of firms going bust and therefore a lot of unemployment.”
Job market hits brick wall during virus lockdown
Britain’s job market came to a dead stop in April as the coronavirus lockdown prompted a huge drop in economic activity, from which businesses could take a year to recover. Demand for labour contracted at the fastest pace in the 22-year history of the monthly Report on Jobs published by the Recruitment and Employment Confederation trade body and accountants KPMG.
The figures chimed with other signs that Britain is in the midst of a historic collapse in economic output after measures to slow the spread of the coronavirus forced company closures across the country last month. A recent Reuters poll of economists suggested the economy is on course to contract by around 13% in quarterly terms in the three months to June. “The Covid-19 pandemic continues to wreak havoc on the UK jobs market with a record drop in vacancies and recruitment plans frozen,” said James Stewart, vice chair at KPMG. More than a third of the almost 300 manufacturers in Make UK’s survey said they did not expect trading to return to normal for six to 12 months after the Covid crisis ends.
Daily wage workers and small businesses take biggest blow
The world’s biggest lockdown forced 122 million people out of jobs in India last month, according to estimates from a leading private sector think tank. Employment plunged in April after the government imposed a 40-day lockdown in a nation of 1.3 billion people, forcing businesses to shut and pushing up the jobless rate to 27.1% in the week ended May 3, surveys by the Centre for Monitoring Indian Economy Pvt. showed. Daily wage workers and those employed by small businesses have taken a massive blow, according to CMIE. These include hawkers, roadside vendors, workers employed in the construction industry and many who eke out a living by pushing handcarts to rickshaws.
“This is not just a mind-boggling number,” Mahesh Vyas, chief executive of CMIE wrote in the Business Standard newspaper. “It is a human tragedy because these are perhaps, the most vulnerable parts of society.” The estimates of India’s job losses are more than four times the 30 million Americans who’ve filed for unemployment benefits over six weeks. The data could get worse in India with the lockdown extended in many areas, CMIE warned. “Initially, a lockdown only hurts the most vulnerable labour that is informally employed in unorganised sectors,” Vyas said. “Gradually, it starts hitting the more secure jobs. Startups have announced layoffs and industry associations have warned of job losses.”
Meanwhile, India’s construction sector, the country’s biggest job creator, is facing a shortage of workers amid a record increase in national unemployment. That’s because internal migrants, who comprise about half India’s workforce, are choosing to return to their villages after facing hunger and weeks of uncertainty in cities because of the coronavirus lockdown.
Services sector contracts for third month
China’s services firms wallowed in contraction in April as layoffs hit a record and export orders plunged after signs of improvement in March, a private survey showed, dashing hopes of a quick recovery from the coronavirus blow. The Caixin/Markit services Purchasing Managers’ Index (PMI) did manage to pull up to 44.4 in April from 43 in March, but remained in a deep slump and far below historic averages. The 50-mark separates growth from contraction on a monthly basis. The third straight month of contraction for China’s services sector, an important generator of jobs and which accounts for about 60% of the economy, suggests a still turbulent period ahead after the collapse in economic activity in the first quarter, when gross domestic product shrank 6.8%. It also raised worries about the outlook even though the pandemic has been largely brought under control domestically, as a sharp global downturn dampens demand for Chinese goods and services. “The second shock wave for China’s economy brought about by shrinking overseas demand should not be underestimated in the second quarter,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.
Generation Z takes the heaviest hit
Covid-19 has hammered Canada’s labour market from all sides. But it’s the youngest workers who are taking the greatest hit and will pay the steepest price.
Canada shed three million jobs in the last two months due to the coronavirus lockdown, causing the unemployment rate to shoot up to 13 per cent in April, the government reported Friday.
That rate more than doubled, following a small increase the previous month when restrictions started to be put in place, its statistical agency said. The new rate is second only to the 13.1 per cent observed during the recession of 1982, but lower than analysts had forecast.
Employment for workers aged 15 to 24 dropped by 480,100 in April, or nearly 22%, Statistics Canada said Friday. That’s a disproportionate amount since that cohort — known as Generation Z — accounts for 12% of the labour force but represented nearly a quarter of the 2 million jobs lost on the month.
Recessions are always hard on young workers. This downturn has been particularly vicious since the halt on non-essential businesses and strict physical distancing measures have decimated the sales and services sector, where many young people work. Generation Zers who are entering into the workforce now could face lower lifetime earnings compared to younger or older cohorts who graduated during better times. That’s because new entrants will have a harder time finding a job that matches their skill sets and may have to take a position with a lower skill relative to their education.
Lockdown economy bleeds jobs
South Africa needs to end a lockdown within weeks or Africa’s most industrialised economy could haemorrhage as many as four million jobs and contract by 16% this year, the nation’s main business group said. The country lacks the financial resources to withstand the extended closure of companies, said Martin Kingston, head of the economic work group at Business for South Africa, which represents the country’s biggest business organisations. Safety protocols must be put in place and commerce must restart, he said.
The government compelled most businesses to shut on March 27 in a bid to curb the spread of the coronavirus. Restrictions were marginally eased on May 1, with a move to so-called Level 4 from 5, and key industries such as mining are only operating at partial capacity. Borders have been closed except for limited cargo and the number of people queuing for food parcels is growing. A business confidence index hit its lowest level in April since South African Chamber of Commerce and Industry began compiling it in 1985. “We are not like the European Union, or the US or China, Japan” and can’t withstand a drawn-out process, Kingston said. “We are talking about weeks, not months, to get through the levels. That is what we aspire to as business.”
Jobless rate rises as virus starts to impede economy
New Zealand’s jobless rate rose and wage growth slowed in the first quarter as the Covid-19 pandemic started to push the economy toward recession. The jobless rate climbed to 4.2% from 4% in the fourth quarter, Statistics New Zealand said. Economists expected a rate of 4.4%. The Labour Cost Index for non-government workers increased 0.3% in the quarter, slowing from 0.6% in the previous three months. New Zealand is bracing for a recession and a surge in unemployment as border closures and a nationwide lockdown forced many businesses to close and make workers redundant. Unemployment benefit claims have soared and business hiring intentions have slumped, suggesting the jobless rate may rise toward 10% over the course of 2020. Economists expect the central bank to provide more stimulus next week by increasing the size of its quantitative easing program, while some analysts see a shift to negative interest rates later this year.
Lockdown destroying jobs, says Bolsonaro
Brazil’s President Jail Bolsonaro railed against the country’s lockdown in a speech to thousands of anti-confinement demonstrators as the number of confirmed Covid-19 infections passed 100,000, with more than 7,000 deaths. Bolsonaro blamed state governors for continuing the lockdown in a speech outside his presidential palace in Brasilia. “The destruction of jobs by some governors is irresponsible and unacceptable. We will pay a high price in the future,” the head of state said in a speech broadcast live on Facebook.
The demonstration in Brasilia drew a larger crowd than similar protests in recent weeks, and many people held up banners criticising Bolsonaro critics Rodrigo Maia, head of the chamber of deputies, and former justice minister Sergio Moro who resigned last week. Others in the crowd called on the army to intervene. “The people are with us and the army is on the side of the law, order, freedom and democracy,” Bolsonaro told them.