Partial unemployment schemes, sometimes called short-term work schemes, are one of the key mechanisms to reduce both the degree of sudden economic downturns and their labour market and social impacts. As reported by the ISSA in March, these schemes, which allow employers to flexibly reduce working hours of their employees while the income loss of employees is covered through unemployment insurance, were extended or newly implemented at a massive scale shortly after the onset of the coronavirus crisis. In many cases, they were considered an essential measure to cushion the economic shock resulting from lockdown restrictions.
It is without doubt that these rapidly implemented measures have contributed significantly to maintaining employment and supporting companies during the past months. In Europe, the peak was reached in April when 10.1 million workers in Germany, 9.1 million workers in France, and almost 1 million workers in Belgium received partial unemployment benefits. In the case of Germany, this represented 22.4 per cent of total employment and compares to a peak of only 3.3 million workers who received such benefits during the financial and economic crisis in 2009.
Partial unemployment benefits are by definition a temporary mechanism to maintain employment during a period of economic difficulties. For this reason, all special COVID-19 partial unemployment measures taken at the onset of the crisis were time-limited for a period of around three months which was the expected length of health-related restrictions sufficient to stop the pandemic and return the economy to normal.
It is now evident that the pandemic continues to impact negatively on the global economy. As many travel and other restrictions remain in place or are reintroduced, governments are facing the question of how to develop partial unemployment benefit schemes in the coming months.
The objective remains to protect employment and the productive capacity of companies while at the same time sustain consumption in view of continued crisis. However, programme costs weigh heavily on governments and social security budgets. For instance, the total cost of the partial unemployment programme in France from March to May alone is estimated at EUR 18.4 billion. In addition, as special COVID-19 partial unemployment measures have been designed to provide rather generous support during a short-term economic shock, the long-term reliance on such benefits risks creating moral hazard and consequent economic distortions. Finally, the evolving impact of the crisis is not affecting all sectors in the same way and thus calls for more tailored approaches.
In this context, recent decisions can be categorized as follows:
- Temporary extension of special measures: some countries have extended the special COVID-19 measures taken in March and April, mostly until end of August or September. Some amendments to the schemes are nevertheless being made:
- Improvements: Aimed to address identified shortcomings, including to simplify access or reduce operational complexities;
- Eligibility conditions: Modifications of conditions for companies to access the schemes, including for instance the non-payment of dividends to shareholders or revisions to non-dismissal policies;
- Changes to benefits: Gradual reduction of partial unemployment benefits and/or the salary reimbursements paid to employers;
- Training components: Unusual for partial unemployment schemes but highlighting the prolonged nature of the crisis, some countries have added training and requalification components to the schemes.
- Targeting of programmes: Taking into account the increasingly diversified economic performance of different sectors, some countries have begun targeting the special COVID-19 partial unemployment measures to sectors that continue to be most affected, including tourism or event industries.
- Transition regulations: Some countries that had regular partial unemployment programmes before the coronavirus crisis have established an explicit schedule to transition from the special measures taken in March to the conditions and benefit levels of their regular programmes. Other countries without such pre-existing programmes have begun discussing the transitioning of their special measures towards less generous long-term programmes.
Country examples of recent developments
In Austria, special COVID-19 partial unemployment measures were introduced for a period of three months after the onset of the pandemic and later extended for an additional three months until September. The decision to extend the programme was accompanied by some simplifications to the scheme, in particular regarding the number of working hours, the calculation of the benefit as well as the possibility to terminate employment in some circumstances. Anticipating prolonged economic difficulties in some sectors, and to establish a longer-term planning horizon for employers, a new temporary partial unemployment scheme will start on 1 October for a period of six months. Requiring a minimum and maximum working time of between 30 and 80 per cent of normal hours, the scheme will also focus on qualification measures.
In Belgium, a short-term unemployment scheme existed already before the coronavirus crisis, and benefits were available based on force majeure or economic reasons. After the onset of the crisis, the definition of force majeure, which carries lighter eligibility conditions for benefits, was widened to include all COVID-19 related benefit applications. This widened interpretation will end on 31 August and employers will then have to apply for benefits for economic reasons. However, a special transition scheme will apply for certain cases. A similar arrangement to gradually transition from a force majeure to a regular economic difficulty scheme has been put in place in Luxembourg since July, and tailored solutions are being put in place for particularly affected sectors such as the tourism or the event industries. In Switzerland, the regulations of the pre-existing system will once again apply from 1 October, but some transition measures are foreseen until the end of 2021, including the reduction in the waiting period for benefits and the extension of the maximum payment period from 12 to 18 months.
France had also introduced a special short-term work scheme early in the crisis. As part of this scheme, the employer payed 70 per cent of salary, and was then fully reimbursed by the unemployment insurance scheme. As no deductions were payable, this corresponded to a replacement rate of 84 per cent for workers. A transitional arrangement has been put in place towards a longer-term system. From 1 June, the employer still pays 70 per cent of the salary, but receives only 85 per cent of the amount paid as a reimbursement. From 1 October, the employee will only receive 60 per cent of former salary for a period of a maximum period of six months. The amount paid back to the employer will then also be further reduced to 60 per cent. Special transition arrangements may apply to certain sectors such as tourism.
The Netherlands introduced a special COVID-19 partial unemployment scheme in March for 3 months, and this scheme has been renewed until the end of September. Together with the renewal, new conditions were introduced, including the non-distribution of dividends and the creation of training offers for employees. Dismissals are now allowed but lead to a reduction in the reimbursement rate paid to employers.
Partial unemployment schemes have been one of the most effective intervention mechanisms to maintain employment and the productive capacity of the economy, protect income levels and support companies during the coronavirus crisis. Far-reaching and generous schemes were put in place in many countries soon after the onset of the crisis in March and April, and aimed in particular at absorbing the economic shock caused by lockdown restrictions.
Faced with prolonged economic difficulties and continuously sluggish demand affecting a number of sectors, countries are faced with the issue of how to adapt partial unemployment arrangements to appropriately support employers and workers, reduce expenditures and align schemes to the evolving economic situation without creating undue dependencies.
In most countries that had put in place special COVID-19 measures in March and April, these arrangements will end in August or September. At the same time, a number of transition measures have been put in place, including for the most affected sectors, and countries without pre-existing schemes are considering new longer-term solutions.
In a dynamic economic environment, the need for continued flexibility and short-term changes is generally recognized. For social security institutions that have successfully implemented new regulations and responded to millions of applications in a difficult context, adaptability will remain an essential asset in the coming months.