Job guarantee, so that COVID unemployed of today do not become long-term unemployed of tomorrow

by Simon Theurl and Dennis Tamesberg

[This article published on Aug 25, 2020 is translated from the German on the Internet, https://awblog.at/jobgarantie-covid-arbeitslose/.]

What it needs now: More staff in the AMS to provide effective job search support; money for training measures to make good use of the slack in the labor market; and, due to the scarcity of jobs, a public job guarantee for people who would otherwise not find employment.

Historically high unemployment

In order to contain the spread of the COVID 19 pandemic, governments around the world are placing restrictions on public and private life. This had an impact on economic activities. There was a dramatic increase in unemployment. At the end of March, around 200,000 people in Austria lost their jobs within two weeks. 563,530 people were unemployed - the highest March figures in the Second Republic. In the meantime, unemployment has fallen to 432,539 people. Compared to July 2019, however, this is still around 100,000 people more.

According to the economic forecasts for Austria, the situation on the labor market will recover only slowly in the coming years. The IHS predicts an unemployment rate of 8.8 percent for the period 2020-2024. By comparison, the unemployment rate in 2019 was 7.1 percent. The WIFO expects around 368,000 job seekers in 2021, which means that 67,000 people will have lost their jobs in 2020 due to the COVID crisis.

Unemployment solidifies with a time lag

This shows what has already been observed in previous economic crises: Unemployment is solidifying, long-term unemployment is rising. As a result of the financial and economic crisis of 2007/08, the number of long-term unemployed has risen significantly. It is important to note that the highest increases occurred with a time lag - five years after the recession. Between 2013 and 2016, the number rose between around 13,000 and 30,000 long-term unemployed people per year. The peak with 119,809 long-term unemployed was reached in 2016.

Austria is far from the starting point of 2008. Since the Corona economic crisis, not only unemployment has increased, but also long-term unemployment. The peak value of 2016 has already been reached with 119,486 long-term unemployed persons. Since previous crises have taught us that the strong increases in long-term unemployment are only felt with a time lag, it is to be feared that the situation will worsen dramatically in the coming years.

Far-reaching consequences: Poverty will increase

Research into the consequences of unemployment is inseparably linked to the pioneering study "Die Arbeitslosen von Marienthal" by Jahoda/Lazarsfeld/Zeisel. One of the central statements of research on mass unemployment in the 1930s was that prolonged unemployment leads above all to resignation and apathy. Persistent unemployment can lead to social isolation and political inactivity. For those affected, long-term unemployment means material deprivation, social exclusion and, as a consequence, often increasing health impairments of a psychological and physical nature. A phenomenon that is already observed in the current crisis!

The direct consequence of unemployment is the reduction of household income. In Austria, the so-called basic amount of unemployment benefit is 55 percent of the daily net income. The subsequent emergency unemployment assistance is 92 or 95 percent of the previous unemployment benefit claim. In 2019, the average unemployment benefit was around 980 euros per month and emergency unemployment assistance was around 810 euros net. Both amounts fall below the current at-risk-of-poverty threshold (1,286 euros per month). As the duration of unemployment increases, the risk of becoming at risk of poverty or exclusion increases.

If unemployment benefits and emergency unemployment assistance are not increased, it can be assumed that the number of people at risk of poverty among the unemployed alone will increase by up to 20,000 this year. If long-term unemployment rises even more strongly with a time lag, e.g. in 2021 or 2022, the increase in people at risk of poverty will be dramatic. This should be prevented by all means.

Political solutions are needed

The central problem is the shortage of jobs. Therefore, an active economic policy is needed that enables more employment to be created through measures to stimulate the economy. The relief effect on the labor market would on average also lead to shorter unemployment periods. However, the long-term unemployed will only benefit from economic stimulus programs to a limited extent and with a very long delay. Specific measures are therefore needed for the target group of the long-term unemployed:

The slack in the labor market can be sensibly exploited by further training and retraining measures. However, the success of these measures depends on tailor-made, individual solutions and on the extent to which they succeed in boosting the motivation and self-confidence of the long-term unemployed. This is where the AMS repeatedly comes up against its (current, resource-related) limits, as the current appeal of the works council shows.

More staff in the AMS to ensure adequate support in finding work for the insurance recipients. At least 650 additional positions would be necessary. The WIFO evaluation of a pilot project with a greatly improved care margin in a counseling zone in Vienna and a service zone in Linz has shown that a higher care density reduces the duration of unemployment.

Since there are too few jobs, a job guarantee for the long-term unemployed is needed. A sufficient number of jobs must be created. This is where politics is needed.

The idea of a job guarantee is quickly explained: Expenditures, which otherwise arise for unemployment, are used for the financing of jobs. By involving the people in the regions and districts in the choice of newly created jobs, meaningful jobs can be created locally from which everyone benefits. If one takes into account the falling costs of unemployment insurance, the returns to social security and the additional income from taxes, the costs of publicly financed jobs remain manageable. With an additional 300 million euros, jobs for 45,000 people could be financed for one year. At the same time, the quality and range of public services can be improved.

But also beyond the calculation examples: Long-term unemployment is a market failure. People who want to work cannot find a job. Nevertheless, money is spent that could be used to improve public services.