How to protect jobs during Covid-19: Lessons from the Greek experience

The Covid-19 crisis has profoundly affected employment everywhere. The evidence is now available on the impacts seen during the first few months of the pandemic (ILO 2020). In some countries, like the US and Canada, unemployment quickly skyrocketed to levels not seen in living memory. In others, including several in Europe, the labour market response looked very different, with few layoffs and workers remaining attached to their employer (even if they were working little, or not at all). Various factors explain these differences in how labour markets adjusted. For example, the severity of the pandemic, the structure of the economy, and the implicit social contract between employers and employees all played an important part in determining the effect of the pandemic on labour markets.

Another key factor – and perhaps the most important one – has been the different policy choices countries have taken to mitigate the economic costs of the virus and lockdowns and to protect workers (e.g. Juranek et al. 2020). Broadly speaking, countries have followed two models: one emphasising income support for those losing their jobs or livelihoods through expanded unemployment insurance and other cash transfers; the other emphasising job retention through wage subsidies, layoff restrictions, and short-term compensation schemes (OECD 2020). How successful these models were in the initial months of the crisis will offer important lessons for policymakers in dealing with the immediate consequences of future shocks. But equally important for a full assessment is how countries using different approaches respond to second (and subsequent) waves, and eventually to fully restarting their economies in a ‘post-pandemic’ world.

We have recently been able to put together a detailed picture of the early months in one country, Greece, which has followed the job retention model. More specifically, we have analysed the short-run labour market impacts of the pandemic and lockdown using survey, administrative, and online job postings data (Betcherman et al. 2020). What we found was that Greece’s job retention approach successfully mitigated the possibility of large-scale unemployment. However, the consequences of the lockdown were manifested in other ways, specifically in terms of job creation. We plan to carry out an updated analysis in the coming months to see how the labour market responded to the relaxation of the lockdown and a partial reopening of the economy.

Greece’s experience provides an interesting case study, albeit an unfortunate one (since the pandemic arrived at a time when the economy finally seemed to be recovering from the decade-long economic crisis). Especially in the early months, Greece managed the virus well, through a rapidly imposed and strict lockdown. But the cost has been a severe economic downturn (among the worst in Europe). GDP declined by 14% in the second quarter and the IMF projects that GDP will decline by 9.5% in 2020 (IMF 2020). In early November, the government announced a second lockdown which may result a further decline in the GDP numbers.

Mobility data show that, beginning in early March with the initial lockdown, Greeks stayed home. This only gradually started to change after early May (when many restrictions were lifted). But unemployment did not increase. In fact, we found that the number of separations in those months was actually lower than separations in the same months in previous years. This does not mean that the labour market was not significantly affected by the pandemic and lockdown. It was – virtually no jobs were created in these months. That is particularly noteworthy when the heavily seasonal nature of the Greek economy is taken into account. The late winter and spring are typically months when the very important tourism sector is hiring for its busy summer season. In fact, our analysis found that employment by the end of June was 12% lower than it would have been had there not been a pandemic, with the majority of these ‘missing’ jobs related to tourism.

Figure 1 ‘Missing jobs’: Actual daily employment levels in the first half of 2020 compared to expected trends based on 2018 and 2019

What explains these patterns in the first months after the pandemic started – a major economic slowdown, but no increase in layoffs and all of the impact coming from a virtual halt on hiring? The answer lies in the job-retention policies that the Greek government adopted to mitigate the costs of the lockdown and protect workers. Cash transfers were available to workers on the condition they were not laid off from their employers (whose operations had been harmed by the lockdown). Moreover, layoffs were prohibited in sectors designated as affected by the crisis. So, this strategy ensured that large numbers of layoffs would not be a consequence of the shock.

Greece was one of several countries in Europe adopting job-retention approaches that experienced similar trends in the early months of the crisis. In France, the unemployment rate actually fell from 7.7% in February to 6.6% in June. Germany, in some ways the original architect of the job protection strategy (with its Kurzarbeit short-term compensation scheme), had only a slight uptick in the unemployment rate over these months, from 3.6% in February to 4.3% in June. Compare these trends to those in North America, where the emphasis was on income support more than job retention: between February and June, the unemployment rate increased by almost seven percentage points in Canada and by almost eight percentage points in the US. A similar picture emerges when we look at the job numbers in the early months. Total employment in the second quarter fell by 11% in Canada and 13% in the US, compared to just 3% in Greece and 2.5% across the EU.

Table 1 Employment and unemployment trends during the first months of the crisis in different countries

The evidence from the early months of the crisis seems to highlight the advantages of policies that protected jobs rather than supported workers who lost them. This was also observed in the global financial crisis (Giupponi and Landais 2020, Scarpetta et al. 2020). However, some caution is needed in interpreting these trends because of the challenges in measuring labour market states like employment and unemployment during the pandemic. Many furloughed workers in Greece and other European countries may have continued to be counted as ‘employed’ but were, in fact, not working – even though measured employment in Greece fell by only 3% in the second quarter, hours worked declined by 19%.

The job-retention model offers the advantage that firms looking to ‘gear up’ again will not have to search for new employees in the labour market. However, if they will not be recalled, furloughed workers may be less likely to search for a new job than an unemployed worker, perhaps because they don’t realise their job will only exist as long as the subsidy exists. Income support models, instead, seem better suited for speedier labour market recoveries since they force the relocation of workers from firms and sectors that may no longer be viable to those with better long-term prospects (OECD 2020). Again, there was evidence of this in the financial crisis (Rothwell 2020), and initial evidence suggests this may be the case with the pandemic as well. Employment rebounded strongly in Canada and the US in the third quarter, growing at 8.6% and 6.2% respectively. With this job growth, the unemployment rates in those countries fell by 3-4 percentage points in the quarter, while the rate across the EU rose.

Given the ‘halting’ nature of the economic recovery almost everywhere, the emphasis on protecting livelihoods will need to remain a focus for some time. However, as conditions permit, strategies will need to shift toward proactive policies that enhance employment possibilities for unemployed and otherwise vulnerable workers. It is important that the pool of workers without jobs now does not become a pool of long-term unemployed workers down the road. The pandemic is accelerating technological and structural changes, so these workers will need to be prepared for the occupations and skills that will be in demand in the ‘post-Covid’ labour market (Chernoff and Warman 2020). When financing to protect workers’ incomes can be scaled back, countries will need to be prepared to reallocate funding to activation programmes that improve the efficiency of job search and job matching, and that offer relevant skills training for the new job openings. One way to meet this challenge will be to learn from the experiences gained during the pandemic with using technology to deliver programmes and services.

In summary, given the nature of this crisis, models for managing labour market shocks will not only need to provide effective protection in the short run but also offer extended support where the shock persists or reoccurs (as seems to be the case with Covid-19). Moreover, successful policy approaches will need to be well suited for enabling job creation once conditions are in place for a restart.