Responding to unemployment in United States, Europe, and Britain

The worst economic fallout since the Great Depression 1929 just started, by accelerating protectionism and autarky across the world. In other words, we are facing the greatest challenge since the establishment of the international monetary system at the 1944 Bretton Woods agreement, as a fully negotiated monetary order intended to govern monetary relations among independent states. The coronavirus pandemic is a global crisis; hence it can only be solved at a global level.

   Officials in United States alone forecast a total 15 million to 20 million job losses by May, pushing unemployment to 15% from the current lowest 4.4%. Meanwhile, other institutions project 26 million layoffs and a 16% jobless rate over the next two months.

   Indeed, millions of people in the United States filed for unemployment benefits in the last weeks since the coronavirus pandemic shut down the economy. Also, it seems that never has America’s labor market been hit as hard and quickly as this.

   Massive layoffs cannot be stopped at a global scale immediately, while signing up for subsidy programs that essentially transform corporate payrolls into a system for delivering billions of capitals from governments directly to households is just a temporary measure.

   Governments across the world hope that such programs will act as a giant pause button for America’s, Europe’s, and Asia’s economy. This scheme is based on the fact that workers must not supposed to miss a single paycheck. Accordingly, when coronavirus stops its negative impact, workers will have their job waiting as it was and get their salaries continuously.

   For instance, there are different approaches regarding Europe and United States. In the dollar economy, market forces can reshuffle capital and labor to a greater degree during downturns. On the contrary, the European approach assumes that we can achieve stability by locking up capital and preventing layoffs.

   But, what about the cost of the above two approaches? The Congress of United States has recently provided 349 billion dollars (320 billion euros) for a program that provides loans to companies with fewer than 500 employees to meet payroll for eight weeks. Those loans will be forgiven if the borrower does not lay off any staff. However, this approach ended up with a massive increase on unemployment rates, as corporations cannot afford its indirect impacts.

   On the other hand, the European Commission adopts a Temporary Framework of over 500 billion euros to enable member states to further support the economy in the COVID-19 outbreak. The framework enables member states to ensure that sufficient liquidity remains available to businesses of all types and to preserve the continuity of economic activity during and after the outbreak.

   So, Europe support its members with direct grants (selective tax advantages and advance payments where states will be able to set up schemes to grant up to 800,000 euros to a company to address its urgent liquidity needs), state guarantees for loans taken by companies from banks, subsidized public loans to companies (states will be able to grant loans with favorable interest rates to companies), safeguards for banks that channel state aid to the real economy, and short-term export credit insurance.

   Interestingly, a non-EU state, the United Kingdom, in response to massive unemployment prediction, has applied for government grants that cover 80% of each employee’s wages for an initial three months, up to a monthly maximum of 2,500 pounds (3,165 dollars, or 2,850 euros). Finally, in the Asian undeclared economy, it is impossible to treat human resources evenly, so the Chinese government cannot achieve such response mechanisms.