Heidelberg Lecture 1 Global Unemployment & COVID-19
Under the auspices of Deutschlandjahr USA 2018/19, the American Council on Germany and the Heidelberg University Association partnered to hold a series of inperson “Heidelberg Lectures.” Over the next few months, we plan to continue this collaboration in an online format as part of WunderbarTogether 2020. The first lecture took place on July 17 with Heidelberg University’s Prof. Dr. Welf Werner, who discussed how the United States and Europe are implementing labor market policies to address unemployment during the COVID-19 pandemic.
Dr. Werner began by observing that despite similar drops in real GDP in the EU (-3.8%) and U.S. (-4.8%) during the first quarter of 2020, the United States has experienced a far higher number of unemployment registrations than in European countries. He explained that the main reason for this difference is the existence of job retention programs that are offered in many EU countries. In Germany, Kurzarbeit programs allow workers to keep their jobs at companies in economic distress and be subsidized for a short-period of time. In April 2020, six million German workers, 14 percent of the labor market, were in Kurzarbeit and are reimbursed up to 87 percent of lost earnings for six to 12 months. Key advantages of these programs are maintaining viable job matches, reducing societal disruptions, and avoiding long-term unemployment.
In the United States, Dr. Werner explained that 27 states offer job retention schemes as “work share” or “short-time compensation,” but in April 2020 only 62,000 claims had been made versus 12.5 million claims for unemployment benefits. One reason for this is the program design that results in low payments. Employers reduce hours and wages and employees collect partial unemployment benefits in proportion to reduced hours. The Payment Protection Program (PPP) under the CARES Act is also a job retention scheme that provides businesses with loans that turn into grants if employees are retained on payroll. By the end of May, 4.8 million loans had been made, but it is unclear how many employees were impacted. One U.S.-French study showed that while the U.S. spent 1.9 percent of 2019 GDP on job retention and France spent 1.4 percent, U.S. unemployment increased by 10 percentage points in the second quarter and French unemployment only went up by two percentage points. Dr. Werner suggested that further studies were needed over a longer period of time to evaluate the impact of PPP.
The U.S. also expanded unemployment benefits by ramping up average weekly benefits of $385 for a maximum of 24 weeks with an additional $600 per week for a maximum of 38 weeks. Evaluating these two efforts, Dr. Werner pointed out that the U.S. went from being the most stingy country to the most generous. However, there are problems in that the unemployment benefits are higher than the median salaries for half of all workers, so that there may be a disincentive to find employment. There are also uncertain future prospects for continuing these programs.