[The Editors' Verdict] Employment Market "Painkiller Prescription" Is Not Sustainable

Since the outbreak of the novel coronavirus disease (COVID-19), countries around the world have faced the crisis of mass unemployment. Mass unemployment can trigger a chain reaction affecting consumption and production, potentially plunging national economies into a downturn. To prevent this, governments worldwide promptly implemented unemployment countermeasures. However, the approaches taken by the United States and Europe were distinctly different. Europe focused on employment retention measures, while the United States applied unemployment benefit systems.

Major European countries concentrated on preventing mass layoffs themselves. Instead of layoffs, they supported workplaces using reduced working hours or temporary leave. To reduce employers' burdens, they promoted measures such as social insurance premium reductions, expanding the compensation rate for leave allowances, and simplifying application procedures. A representative example is Germany's Kurzarbeit. Germany's government fully compensates employers' social insurance contributions for reduced working hours allowances until the end of this year. The support also includes temporary and contract workers. Neighboring countries such as the United Kingdom, France, and Spain have introduced similar systems one after another. South Korea's Employment Retention Subsidy is also close to the European model.

On the other hand, the United States responded by supporting the income of the unemployed. Instead of artificially preventing layoffs, it directly supports the income of unemployed individuals. Through the CARES Act, the U.S. paid unemployment benefits of $600 per week until the end of July.

The unemployment measures in Europe and the U.S. showed distinctly different results as well as approaches. While the U.S. unemployment rate surged sharply, Europe's unemployment rate generally remained stable. According to Eurostat, the official statistical office of the European Union (EU), the unemployment rate within the EU in April was 6.6%, rising by only 2 percentage points compared to the previous month. In contrast, the U.S. unemployment rate in April soared by a staggering 10.3 percentage points to 14.7%. In the U.S., 20 million people lost their jobs in just one month of April.

At first glance, the European-style employment measures seem effective. However, as COVID-19 has prolonged, different evaluations have emerged recently. According to a recent analysis by The Economist, 11 million workers in the four major European countries?United Kingdom, France, Germany, and Spain?are still on temporary leave. This accounts for 9% of the total workforce. Although the number of temporary leave workers in France and Spain has significantly decreased, the proportion in the UK reached 15% as of July.

The purpose of introducing the temporary leave system was to resolve employers' temporary financial difficulties during lockdowns without laying off workers, thereby enabling their swift return to the labor market once economic activities resumed. Since it is difficult to find a job again after being laid off, the goal is to maintain 'employment' status as much as possible. The temporary leave system is analyzed to have a higher income replacement rate than unemployment benefits and is also effective in stabilizing consumer sentiment.

However, as the temporary leave period lengthens, side effects have emerged instead of these advantages. The European-style employment stability system, despite its benefits, has been criticized for delaying restructuring. The Economist explained in an article titled "Pain Relief?Is Europe Scaling Back Its Temporary Leave Schemes?" that "the longer the temporary leave period lasts, the lower the likelihood of recovery to normal life, while incentives to seek other jobs are almost nonexistent."

It is also questionable whether the European-style employment retention system truly lowered unemployment rates. The Economist analyzed that including temporary leave workers, the unemployment rate in the four major European countries could reach 12?20%. In comparison, the U.S. unemployment rate, after peaking in April, dropped to 8% last month.

Such criticism has also emerged domestically. In a recent report, the Bank of Korea warned, "Reduced working hours make it difficult to avoid an increase in structural unemployment if the shock prolongs, and during economic recovery, they may hinder the optimal allocation of labor, thereby becoming a burden on employment recovery." This is a message that employment policy authorities should heed carefully.