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Europe’s job retention schemes may create further problems, analyst warns

Europe’s “blanket job-retention schemes” mean that around 9 million workers risk becoming unemployed in 2021, according to asset management firm Allianz, in what could be a looming issue for many governments.

Business actors across the world have no choice, but to close in order to limit the Covid-19 spread. That has created never-before-seen levels of troubles both for small and large business. To smooth the waters, most European leaders have thrown themselves to implement short-term solutions trying to avoid a sharp increase of unemployment levels.

According to chief economist at Allianz, Ludovic Subran: “In the five largest European countries, we estimate that 9 million workers or 20% of those currently enrolled in short-work schemes, face an elevated risk of becoming unemployed in 2021 because of the muted recovery in late bloomer sectors and the policy cliff effect.”

“We call these zombie jobs; they require ad hoc policies to avoid postponed mass unemployment.”

Allianz points out that 45 million jobs in the five largest European economies were currently on national employment support schemes.

Subran considers that the policies should be supported with other initiatives, especially as for the sectors — like construction, transport and hospitality. 

“If you continue just giving incentives for people to be in partial unemployment, this is not enough for boosting mobility from one sector that is maybe in a difficult situation for a year or even 18 months to another sector, which is much more productive,” Subran added.

Subran pointed out that governments should avoid “toughening” the labor market, but should “try to top up with active labor market policies, focusing on intermediation and requalification for those sectors that are actually on life support right now.” “Because if it is only about life support, then policymakers have to budget it for all the way to mid-2021 or even end of 2021 and this is a very high bill to foot,” he added. 

As the EU’s statistics office reports unemployment rate for the European Union was 6,6% in April, while this figure was 6.4% in March. Some economists and experts predict that this figure dependent on the economic recovery.

To crack the economic problems, the EU is working towards an investment fund that would raise 750 billion euros in new debt to maintain sectors and companies across Europe zone. However, the plan, which was initially put forward in late May, has yet to be approved by national governments and parliaments across the 27 countries.

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