Economic Comeback After COVID-19... The Key Is 'Protecting Jobs'

[Asia Economy Reporter Naju-seok] The global economy has come to a halt due to the novel coronavirus infection (COVID-19). Economic growth rates have plummeted into the negative due to lockdown measures to prevent the spread of the infectious disease, exports have decreased, and unemployment is surging. The international credit rating agency S&P has suggested that countries should inject fiscal resources to maintain jobs in order to mitigate the economic shock caused by COVID-19 and respond to the post-COVID-19 economic situation.

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In a recent report titled "Jobs and Recovery from COVID-19," S&P pointed out that "jobs" are currently the core of the economic crisis. The report explained, "Policy makers need to use unprecedented measures to help companies maintain employment," adding, "Policies such as job subsidies or reductions in labor taxes will help prevent damage to the labor market."

S&P viewed that the impact of various measures to prevent the spread of COVID-19 is particularly severe in the service industry. These industries have two characteristics: many provide services that are difficult to deliver through non-face-to-face contact such as online or telephone, and they have played a major role in job creation so far.

The report pointed out that although the degree varies by country, worsening economic conditions inevitably lead to deteriorating employment situations. However, it is noteworthy that "unemployment is easy, but reemployment is difficult." Past experiences show that when economic conditions worsen, unemployment rates plunge, but during recovery, the improvement is gradual.

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Economists attribute this asymmetrical characteristic to the time and effort required to find new jobs. Both companies and workers must go through a matching process. Another point is that even when the economy worsens, those who maintain employment retain or improve their skills, and as economic conditions improve, they may demand wage increases. Once wages rise, companies tend to hesitate to hire new employees.

Moreover, if the unemployment period is prolonged, even workers who had skills and abilities may experience a decline in proficiency, making it harder to find jobs.

Additionally, maintaining employment is related to debt issues. When employment conditions worsen, household debt problems may arise, leading to difficulties in financial markets. This is the point where a real sector crisis can spill over into a financial sector crisis.

Considering these factors, S&P pointed out that governments need policies to support companies in maintaining employment.

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During the past global financial crisis, Germany prevented mass layoffs through the short-time work scheme called ‘Kurzarbeit.’ This system involves reduced working hours with the government compensating part of the reduced wages. Thanks to this system, German workers were able to maintain their jobs and job skills even during the economic crisis. They became key players in leading Germany’s rapid recovery after the financial crisis.

However, S&P also emphasized that government subsidy support should be limited to a short period, typically not exceeding six months. The reason is that such subsidy support can impose a heavy fiscal burden on the government and may also increase the burden on companies.

This content was produced with the assistance of AI translation services.