Why Europe doesn’t see a wave of layoffs like the US

Experts predicted a global wave of layoffs this year, but the reality the numbers show is different.

The phenomenon began to be seen in the United States in the midst of the pandemic: a massive and voluntary abandonment of jobs — something rarely seen in the US labor market and which made it difficult for employers to fill vacancies.

It started with healthcare professionals and teachers forced to return to in-person classes, although Covid-19 cases continued to increase, and then spread to other parts of the economy: service industries, retail, hotels, food, etc.

Having to switch from remote work to the office, tiredness after suffering from the pandemic, or wear and tear due to low wages in unskilled industries are some of the reasons for these layoffs, says Anthony Klotz, professor at the University of Texas Mays Business School. & M University.

This scenario facing the US, however, is not affecting other major economies in the same way, said economists interviewed by BBC News Mundo (the BBC’s Spanish service).

In Europe, the effect was very contained — there is discontent, experts clarify, but not mass layoffs.

Next, understand the reasons.

activity rate

A technical, but easy-to-understand piece of data is the best clue: the activity rate.

The index that measures the level of employment in a country fell in the euro zone from 73.4% to 71.6% in one year (that of confinement). That is, less than two percentage points of decline from 2020 to 2021.

In the US, the drop was three percentage points in just three months, from 63.3% in February 2020 to 60.2% in April of the same year.

“In Europe, there was no decrease in the activity rate observed in the US, nor did we see a considerable increase in voluntary dismissals or a significant increase in unfilled vacancies”, explains Juan Francisco Jimeno, professor of economics at the University of Alcalá, Spain.

The question now is what the eurozone did differently compared to the US in getting its workers back to their jobs after the pandemic.

structural factors

To begin with, a structural factor must be taken into account.

Flexibility and low unemployment rates in the US encourage the worker to leave employment in the hope of better opportunities and working conditions, because the US economy is typically characterized by a rapid recovery of employment in normal times.

Workers enter and leave the market with ease, say the experts interviewed by the report.

However, the European labor market is generally more rigid and with less turnover.

After the pandemic, figures show that Europeans decided to go back to their jobs rather than take risks.

“The US labor market is more fluid and this makes it easier to leave a job. Finding another job in the US is not as difficult as it is in Europe,” explains Juan José Dolado, professor of economics at the Carlos III University of Madrid and an expert in labor economy.

So while Europe uses measures of flexibility within the company when things go wrong — such as reducing their workers’ hours or cutting bonuses or benefits beyond wages — Anglo-Saxon countries base their flexibility on hiring and firing.

Role two unions

“In addition, the greater union membership (that exists) in Europe and a more extensive negotiation between employers and workers imply alternative ways of showing dissatisfaction that are not through resignation”, adds Dolado.

For Luca Nunziata, economist and professor at the University of Padua, Italy, unions also play an important role in the Old Continent.

“European labor markets work differently than the US labor market. If you exclude the UK, they are characterized by an institutional environment that traditionally favors job protection over flexibility,” he explains.

“Furthermore, collective bargaining and unions can play a prominent role, especially in some countries,” he says, referring to the homogeneity of wages in the eurozone given the high wage inequality in the US.

But the fact that there hasn’t been a wave of layoffs in Europe also has to do with employment benefits, such as paid vacations, maternity leave or day-care assistance, agree economists consulted by BBC Mundo.

And they point to broad public assistance in embedding those who lose their jobs — through training and other resources in eurozone countries.

“In general, the comparatively long length of stay in a job is an indicator of a good overall quality of work. The determination and influence of works councils and unions contribute to this in the core sectors of the economy,” says Joachim Moeller, economist and professor at the University of Regensburg, Germany.

“In Europe there is less wage inequality than in the US and this means that the low-skilled workers, most affected by the Covid-19 crisis, have greater incentives to return to work,” says Professor Jimeno.

“Working conditions in Europe are certainly much better than in many other countries in the world, and I’m thinking of many developing countries where working standards and conditions are much poorer, while productivity and real wages are much lower. low,” agrees Nunziata.

The professor at the University of Padua explains that the reasons for social benefits in Europe are historical.

After World Wars I and II, Europe imposed stricter rules and a more generous welfare system due to the bloodshed and suffering at this period in history. This laid the foundations of the welfare state.

“The other side is a weaker labor market and less reallocation of workers in declining or rising sectors. This could affect potential growth once the pandemic ends,” says the economist.

Different approaches

But for economist Christine Erhel, from the Center for the Study of Labor and Employment in Paris, the focus on fighting the pandemic on both sides of the Atlantic also has a lot to do with the rapid recovery of the European labor market.

While the US tackled confinement by increasing unemployment insurance, Europe was paying companies not to fire anyone, even though the workforce was at home out of work in some sectors.

Social protection maintained the link between workers and their companies.

Also greater public assistance in labor insertion.

“In general, in most European countries, the recovery has been quite strong since the summer of 2021 and job growth is dynamic,” says the academic.

He adds: “We still don’t have assessments, but all these policies and institutions certainly played an important role.”

youth employment

“Other measures (such as unemployment insurance) have provided a good level of income protection and a sustained level of demand. Some active labor market policy programs have also targeted specific groups (especially young people) to avoid dependency on lasting consequences of the crisis in their trajectories”, he highlights.

Young people have been one of the most affected segments of the working population.

“Employment has recovered well and the general labor market barometer is in positive territory. That doesn’t mean there aren’t serious problems either,” says Moeller.

As in the rest of Europe, in Germany, the main problem is that many studies were canceled during the pandemic.

“Due to the coronavirus, few professional training contracts were signed compared to previous years. This is a disadvantage both for young people and for the economy in the long run,” he adds.