Home World Europe's job retention schemes have created 9 million 'zombie jobs,' analyst warns

Europe's job retention schemes have created 9 million 'zombie jobs,' analyst warns

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Europe’s “blanket job-retention schemes” mean that around 9 million workers risk becoming unemployed in 2021, according to asset management firm Allianz, in what could be a looming issue for many governments.

Business across the world have been forced to close to contain the spread of the coronavirus, creating unprecedented levels of financial pressure both for small and large companies. As a result, most European leaders rushed to implement short-term solutions in an effort to avoid a massive spike in unemployment levels.

However, these policies could come back to haunt them later, Allianz said .

“In the five largest European countries, we estimate that 9 million workers or 20% of those currently enrolled in short-work schemes, face an elevated risk of becoming unemployed in 2021 because of the muted recovery in late bloomer sectors and the policy cliff effect,” Ludovic Subran, chief economist at Allianz, wrote in a report.

“We call these zombie jobs; they require ad hoc policies to avoid postponed mass unemployment.”

Allianz said that 45 million jobs in the five largest European economies were currently on national employment support schemes.

Speaking to CNBC’s Street Signs Tuesday, Subran said he believed the policies were a good thing, but highlighted the importance of governments complimenting them with other initiatives, especially for the sectors — like construction, transport and hospitality — that have been hardest hit. 

“If you continue just giving incentives for people to be in partial unemployment, this is not enough for boosting mobility from one sector that is maybe in a difficult situation for a year or even 18 months to another sector, which is much more productive,” Subran said.

Customers sit at tables socially distanced from each other at the outdoor terrace of a bar, operating at reduced capacity in Plaza Mayor in Madrid, Spain.

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In order to address this problem, governments should try to avoid “rigidifying” the labor market, he said, and should instead, “try to top up with active labor market policies, focusing on intermediation and requalification for those sectors that are actually on life support right now.”

“Because if it is only about life support, then policymakers have to budget it for all the way to mid-2021 or even end of 2021 and this is a very high bill to foot,” he added. 

In April, the unemployment rate for the European Union rose to 6.6%, up from 6.4% in March, according to the EU’s statistics office. Some economists have argued the rate could be much higher in upcoming readings and is ultimately dependent on how the economic recovery phase develops.

To address some of these economic challenges, the European Union is working towards an investment fund that would raise 750 billion euros ($850 billion) in new debt to help support sectors and companies across Europe. However, the plan, which was initially put forward in late May, has yet to be approved by national governments and parliaments across the 27 countries.

Speaking to CNBC, Subran said he has concerns about when that new money will finally channel through to the firms.

“The question will be about the speed,” he added.

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