Europe doesn't have a labor shortage like the US. It's all about the different ways governments paid people not to work.
- Employment in the US is still below pre-pandemic levels, unlike in European countries.
- European workers got furloughs or subsidized income; US workers got layoffs and enhanced benefits.
American workers have been slower to get back to work than their neighbors across the pond.
That may be because the sting of getting laid off at the beginning of the pandemic made them rethink work and life altogether. European workers, on the other hand, were typically only temporarily furloughed from work or received government-subsidized income while retaining their jobs.
In a February 1 note, Neil Shearing's team at Capital Economics compared how the US and EU have fared when it comes to employment recovery.
They highlight a systemic factor that may have contributed to employment lingering below pre-pandemic levels: The US opted to give workers a lot of money when they were laid off. The result might be seen in the current employment situation, where workers are rethinking what they want out of work or if they want to return at all.
In Europe, governments opted to furlough workers or use subsidies to supplement income, Shearing said. "These kept workers tied to jobs and thus helped to preserve overall employment," he writes. In Europe, employment is "broadly unchanged" from pre-pandemic levels.
But that's certainly not true of the US, where millions of workers lost their jobs and unemployment soared at the onset of the pandemic. Instead of furlough programs, the country instituted enhanced unemployment benefits and sent out direct relief to workers. The Bureau of Labor Statistics found that the country added just 199,000 new payrolls in December 2021. In November, the most recent month for which the BLS released data, 4.3 million workers quit their jobs. Shearing said that employment in the US is 2% lower than pre-pandemic.
"The result has been much greater dislocation in the US jobs market, with employment falling further early on and then rebounding only partially as firms have struggled to match available workers to vacancies," Shearing writes.
Some laid-off Americans previously told Insider that those enhanced
To be sure, there's a whole slew of reasons for labor shortages right now. People are still scared of COVID. They're done with roles where they feel overworked and underpaid. Wages are too low. It's arguably been a development that's years in the making, as systemic factors like the lack of childcare and poor pay bubbled up to the surface amidst a historical pandemic.
Recent research from economists at MIT, the University of Cologne, the London School of Economics, and the University of California, Berkeley found that low-wage workers in Germany underestimate how much money they could make elsewhere. If workers accurately knew what they could make, 10 to 17% of low-wage jobs in Germany wouldn't be viable at their current wages, because workers would either quit or ask for raises.
"One way to read the current economy is that perhaps a lot of workers that used to be stuck in low wage jobs realize that there might be other jobs out there — that are paying potentially more," Benjamin Schoefer, an economist at UC Berkeley and one of the paper's authors, previously told Insider.
That paper looks at Germany, but Schoefer said there are many shared commonalities between the American and German economies so "we could reasonably extrapolate" similar insights could apply to the US's low-wage workforce in normal times.
"The US relied on unemployment insurance and having people leave their original job during COVID, so there was perhaps much more turnover," Schoefer said. "Whereas in countries like Germany during COVID, people stayed in their job and the government subsidized the payroll of employers. So in the US, you might have seen much more turnover and much more reorganization experimentation — which might explain why quits are now high in the US."
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