France, Germany, Denmark, Britain and others have decided to take over the payrolls of struggling companies, so that workers don’t get laid off. The hope is that by paying people to stay home, governments can slow the virus’s spread while also averting an economic depression.
The pricey gamble could work if the coronavirus crisis lasts just a few months, many economists say, since companies would be able to exit their frozen status almost immediately. But if the restrictions drag on, the financial support could saddle European governments with gigantic bills while also failing to avert the collapse of businesses.
Underwriting wages and bolstering the safety net would result in “significantly smaller rises in unemployment, and a big rise in public debt. It brings challenges. But policymakers’ job right now is to make uncertainty matter a lot less,” said Torsten Bell, chief executive of the Resolution Foundation, a British think tank that advised the British government on its vast effort to guarantee private payrolls.
Since many European countries had similar social safety net programs already, albeit in far more limited form, the salary supports were relatively easy to expand, almost literally overnight in many places, amid widespread consensus. When they imposed their economically devastating lockdowns, countries were thus able to signal to workers that their livelihoods would remain intact and to businesses that they wouldn’t immediately implode.
The United States, by contrast, has had to cobble together a support system that is in some ways brand-new. Under the stimulus package, many Americans would get one-time payments, but they would have to be fired or furloughed by their employers to qualify for some of the most substantial financial protections. And because it has taken some time to achieve bipartisan consensus, businesses and workers in shuttered cities and states have been left with uncertainty.
The European response guarantees that most full-time employees will see only limited drops in their income, for now, even if they work in places like hotels and bars whose business model has flatlined because of the pandemic.
If you are a full-time employee, “essentially, you don’t lose your job,” said Jean Pisani-Ferry, a French economist who took part in conference calls with his country’s finance minister to discuss the crisis response.
“There was a high degree of consensus about what needed to be done. We didn’t have the usual debates. Everybody agreed,” Pisani-Ferry said.
He added: “You can expand much more easily a scheme that exists. You can build much more easily on social security, social protection schemes to tailor them to addressing this particular crisis. Whereas in the U.S., legally and institutionally, it’s much harder.”
In France, some economists estimate the government’s financial outlay to support salaries alone could cost 0.4 percent of the country’s annual economic output every month — the equivalent for the U.S. economy of about $86 billion a month. That comes alongside a wide range of other economic measures, including a big bill for the medical response itself.
“The crisis we are facing, because it affects the real economy, because it is global . . . can only be compared to the Great Depression of 1929,” French Finance Minister Bruno Le Maire told reporters on Tuesday, outlining a range of efforts to help people and businesses survive, including delaying rent, utilities and tax bills.
Across the European Union, leaders are going far further than they did in their response to the 2008 recession. The efforts are necessary: European business activity had the largest monthly collapse in March since the IHS Markit analytics firm started collecting data 22 years ago, according to figures released Tuesday.
The economic support has come as a relief for citizens already frightened about the virus.
“My salary will not be cut, which was my biggest worry, because we still don’t know when it is going to end,” said Délia Capelle, 30, a medical secretary at a private clinic in Morlaix, a town in northwest France, whose boss has shut down most of his practice to concentrate on essential procedures.
She was relieved she could be sent home with full pay, she said: It will be safer, healthwise, to stay away from work, and now she won’t have to fear the financial consequences of doing so.
In the United States, the emergency aid package Congress was rushing to finalize Tuesday would provide enhanced unemployment benefits for all workers claiming them, a $600 a week across-the-board increase. The benefits would last for up to four months.
Senate Minority Leader Charles E. Schumer (D-N.Y.) described it on the Senate floor Tuesday as “unemployment insurance on steroids.”
“If you lose your job in this crisis, you can be furloughed by your employer,” he said. “That means you stay on that employer’s work list. If you have health benefits with the employer, you can keep getting them. But, and most importantly, the federal government will pay your salary, your full salary for now four months.”
Though details remained fluid, the legislation would include direct payments of $1,200 to many American adults and $500 to children.
Negotiators have also made efforts to stop layoffs before they happen. The bill is certain to offer hundreds of billions of dollars in bridge loans to businesses meant to keep them paying their workers during the crisis.
In Denmark, government support is even more extensive. Leaders have committed to paying up to 90 percent of the salaries of workers who stay home and who would otherwise be fired, up to about $4,000 a month. If people get the coronavirus, the government will pay for sick leave starting from the first day, instead of requiring employers to cover the first month. And for small businesses whose revenue is evaporating, the government will cover a portion of their rent, among other steps.
The moves to address the crisis come after years of cuts to the country’s famed social safety net, with unemployment benefits having become less generous and other programs being scaled back. Now, many policymakers see their utility in a new light, analysts said.
“This is the best thing that has happened to the welfare state, because at the moment there is this paramount understanding that we are all in the same boat, we are all facing the same enemy,” said Peter Abrahamson, a University of Copenhagen sociologist. “It feeds into this sense of belonging: ‘We’re Danes, we have to stand together.’ ”
The European big-state response has included Britain, where many social protections are traditionally less robust than in continental Europe and where the ruling Conservative Party has overseen years of austerity budgets.
Britain’s “Coronavirus Job Retention Scheme” puts the government on the hook to pay 80 percent of workers’ salaries for those facing layoffs, up to about $2,870 a month, just above Britain’s median income.
Some estimate the British measures will cost 2 percent of Britain’s annual economic output, or about $51 billion, if 1 million people need assistance. The bill could rise if more people sign up or if the crisis drags longer than expected.
For an economy the size of the United States, an equivalent measure would cost about $429 billion.
Some British economists say the commitments, though they won’t be cheap, may be more effective than aspects of U.S. policy.
The commitment to pay a large portion of private-sector wages is “a far, far better, response to what is happening than simply sending a check for $1,000 or $1,500,” said Roger Farmer, an economist at the University of Warwick, because if employees “lose their jobs, the impact of the crisis is much more likely to be permanent than if those jobs can be kept.”
Adam reported from London. Donna Cassata in Washington and Quentin Ariès in Brussels contributed to this report.